Industry Updates

SFDR consultation to consider Article 8 and 9 category overhaul – report

A more ‘precise product categorisation system’ could be developed

Theo Andrew

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The European Commission is set to launch a consultation that will consider new product categories for sustainable investment funds as part of a broader review of the Sustainable Finance Disclosure Regulation (SFDR).

According to draft documents seen by Responsible Investor, the Commission is expected to assess market views on how SFDR has been implemented and how it interacts with other elements of the European sustainable finance framework in a bid to address any potential shortcomings.

It will also address the lack of clarity around ‘light green’ Article 8 and ‘dark green’ Article 9 classifications, which has left asset managers and investors confused following a raft of downgrades and potential upgrades earlier this year.

The consultation could potentially kick off as soon as this week and is expected to run for three months, two industry insiders told Responsible Investor.

It comes as the Commission has come under increasing pressure from asset managers amid growing fears of greenwashing. Earlier this year, it debated scrapping Article 9 altogether.

The Commission said it would therefore seek views on “developing a more precise EU-level product categorisation system”, according to the document, which outlines two potential strategies.

Firstly, the regulator could develop more clarity on how Articles 8 and 9 are defined, or secondly, new types of investment categories could be created that could see the classifications disappear from the framework completely.

Under the new category proposals, which are set to closely mirror the Financial Conduct Authority’s (FCA) sustainability disclosures, four classifications have been put forward.

Firstly, a category for products investing in targeted measurable solutions to sustainable issues, similar to the FCA’s Impact label.

Secondly, a category for funds aiming to meet convincing sustainable standards or a particular theme and thirdly a category that aims to bring “measurable improvements” to the sustainability profile they invest in.

A fourth category, which is not included in the FCA’s Sustainable Disclosure Regulation (SDR), would cover funds that exclude activities with negative environmental or social effects.

Elsewhere, the consultation will ask for views on changes to the disclosure requirements, whether it finds the current requirements useful and whether it should consider streamlining the process.

It also considers whether it should introduce a blanket disclosure requirement for all funds regardless of its sustainability-related claims or not, in a bid to make it “easier for some investors to understand products’ sustainability performance”.

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