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The sustainability disclosures under the Sustainable Finance Disclosure Regulation (SFDR) could be more effective if certain shortcomings are addressed. Eumedion writes this today in response to the targeted SFDR consultation initiated by the European Commission. The Commission aims to gather stakeholder feedback on the implementation and any potential shortcomings of the SFDR framework, including in its interaction with the other parts of the European framework for sustainable finance, and in exploring possible options to improve the framework.

Eumedion identifies various shortcomings that hamper the effectiveness of SFDR disclosures. Next to issues with regard to data availability, data quality and definitions, problems occur due to misalignment between the Corporate Sustainability Reporting Directive (CSRD) and SFDR principles, most notably in the area of ‘materiality’ of the information to be disclosed. The principle of double materiality is a foundational element under the CSRD, whereas this is not the case under the SFDR. Also, the limited comparability between article 8 and article 9 products, as well as between article 6 on the one hand and articles 8/9 on the other is noted. Another issue concerns the limited requirements in the area of ‘governance’ (minimum) requirements, which is an on-going issue in the broader EU sustainable finance package. Eumedion also points out that the SFDR disclosures in its current form do not adequately recognise and support the important issues related to the various sustainability transitions. Many of these issues were also noted in Eumedion’s July 2023 response to the Joint Consultation Paper on the SFDR, initiated by the European Supervisory Authorities. 

Lastly, while Eumedion recognises there is a demand for ESG product categorisation or labelling, Eumedion is hesitant to encourage the European Commission to go down that road, as the complexity involved and effort required will probably not outweigh the potential benefits. Rather, Eumedion would favour a more simplified approach, namely by introducing for all financial products a limited set of mandatory indicators, of which also the development over time could then easily be tracked and presented as such. This will allow clients and beneficiaries to gain an easy understanding of sustainability performance on various key issues.