A leading think tank has urged the European Commission to scrap Article 8 and 9 under the Sustainable Finance Disclosure Regulation (SFDR) in favour of a labelling regime.
The Institute for Energy Economics and Financial Analysis (IEEFA) said cracks in the current system had become “increasingly obvious” while the industry was concerned the current format is failing to achieve its transparency goals.
It comes as the European Commission launched a consultation on overhauling SFDR in September in a bid to address growing concerns around greenwashing.
The group suggested the European Commission should introduce a new system that involves applying reporting requirements consistently to all funds, removing the need for article distinctions.
It said a labelling system would “enhance transparency” and would likely move to a more harmonised approach with other jurisdictions such as the UK’s Sustainable Disclosure Regulations (SDR).
Alasdair Docherty, the report’s author and sustainable finance data analyst at IEEFA, said: “This far-reaching consultation shows that standard setters have been listening and presents an opportunity to rework an unfair and confusing article categorisation system.
“With regulatory course correction looming and assets already deserting funds without minimum sustainable investment commitments, voluntarily applying robust minimum standards should be a priority for asset managers.”
IEEFA’s view echoes thoughts from several national regulators including Dutch financial regulator AFM, which has called for an overhaul of SFDR.
However, BNP Paribas Asset Management (BNPP AM) backed a revamping of the current framework despite noting issues with the way the industry and investors have adopted the regulation, Responsible Investor reported.
Alexander Bernhardt, global head of sustainability research at BNPP AM, told reporters at its 2024 outlook briefing creating sub-categories under Articles 8 and 9 would be preferable.
He added SFDR had already achieved some of its goals by “channelling capital towards more sustainable related activities”.
