Reform proposal for SFDR is largely reasonable

‘With its reform proposal for the SFDR, the EU Commission is finally providing clarity on the requirements for sustainable investments and reducing bureaucracy. For sustainability-oriented investors and fund companies, this reform could be a breakthrough. However, one crucial step is still missing, namely simplifying the criteria for sustainability preferences in distribution,’ says Thomas Richter, CEO of the German Investment Funds Association BVI. The EU Commission plans to introduce clear categories for sustainable financial products and significantly simplify reporting obligations for product providers.

The EU Commission aims to make sustainability disclosure requirements more practical and understandable by revising the SFDR. The draft proposal includes, among other things, the complete abolition of complex and costly company-level reports – particularly the statement on principal adverse impacts on sustainability (PAI statement). In addition, three clearly defined product categories with minimum criteria are to be introduced, offering investors better guidance on sustainability than the previous transparency rules, commonly known as Article 8 and Article 9 funds. Furthermore, product information is to be streamlined and focused on key details regarding sustainability objectives and strategies. Portfolio management and investment advice will no longer fall under the scope of the SFDR.

The next step is for the EU Parliament and the Council to review the draft. For practical implementation, further detailed Level 2 rules will be required. In addition, the process for querying sustainability preferences in investment advice under MiFID and IDD needs to be revised. This should be aligned with the new SFDR product categories and come into force simultaneously with the SFDR reform.
 

Download Press release (PDF)