ESAs Propose Improvements To The SFDR And Suggests Introducing Categories And/or Sustainability Indicators

Background

On 18 June 2024, the three European Supervisory Authorities (EBA, EIOPA, and ESMA, collectively known as the ESAs) published an opinion (the Opinion) on the evaluation of the Sustainable Finance Disclosure Regulation (SFDR). This Opinion was initiated by the ESAs themselves and was addressed to the European Commission.

Through two consumer testing exercises, the ESAs observed that the SFDR could be perceived as "complex and difficult to comprehend". Furthermore, its practical use as a classification tool for financial products could potentially lead to greenwashing and mis-selling risks. As a result, the ESAs strongly advise the Commission to conduct consumer testing when formulating policy options. This would provide a more robust evidence base for modifying the regulatory framework, leading to more effective outcomes.