ESMA Proposes Sustainability Disclosures for ALL Financial Products

26 Jul

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor has published an opinion on 24th July 2024, identifying possible modifications to SFDR. This opinion builds on the findings of the ESMA Progress Report on Greenwashing and the Joint ESAs Opinion on the review of the SFDR (which we summarised here).

The main recommendations for the EU Commission’s consideration are listed below, but most notable is the proposal that all financial products should disclose some minimum basic sustainability information, consisting of a small number of simple sustainability KPIs. Effectively, this could bring all current Article 6 funds into scope for some level of sustainability reporting.

ESMA’s goal is to improve transparency and facilitate comparability between financial products – especially between products with an ESG objective, smaller ambition, or no ambition. Examples of the types of indicators that could be reported on include GHG emissions, impact on biodiversity, EU Taxonomy alignment, human rights and labour rights.

Other Key Recommendations

The other key recommendations for the European Commission’s consideration were:

The EU Taxonomy should become the sole, common reference point for the assessment of sustainability and should be embedded in all Sustainable Finance legislation;

The EU Taxonomy should be completed for all activities that can substantially contribute to environmental sustainability and a social taxonomy developed;

A definition of transition investments should be incorporated into the Framework to provide legal clarity and support the creation of transition-related products;

A product categorisation system should be introduced catering to sustainability and transition, based on a set of clear eligibility criteria and binding transparency obligations;

ESG data products should be brought into the regulatory perimeter, the consistency of ESG metrics continue to be improved, reliability of estimates ensured; and

Consumer and industry testing should be carried out before implementing policy solutions to ensure their feasibility and appropriateness for retail investors.

As with the Joint ESA’s Opinion in June 2024, this will be digested by the EU Commission, who will determine the way forward for SFDR.

If accepted, these proposals would be a fairly major change, particularly for managers of Article 6 funds who do not currently report any sustainability information. We believe this suggestion has real potential to be accepted, particularly given that this was discussed as part of the original proposal for SFDR. We will continue to monitor SFDR as it evolves.

If these changes will affect you, and you’d like to know how Danesmead ESG can help, get in touch.