ESAs call for ‘coherent sustainable finance framework’

Written by Natalie Tuck

21/06/2024

The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) are calling for a coherent sustainable finance framework that caters for both the green transition and enhanced consumer protection.

Publishing a joint opinion on the assessment of the Sustainable Finance Disclosure Regulation (SFDR), the ESAs said the framework should take into account lessons learned from the functioning of the SFDR.

Within the opinion, the ESAs focus on ways to introduce simple and clear categories for financial products. The simplifications consist of two voluntary product categories, ‘sustainable’ and ‘transition’, that financial market participants should use to ensure consumers understand the purpose of the products. They believe the rules for the categories should have a clear objective and criteria to reduce greenwashing risks.

Furthermore, the ESAs recommend that the European Commission consider the introduction of a sustainability indicator that would grade financial products such as investment funds, life insurance and pension products.

In addition, the opinion also covers appropriate disclosures for products outside the two categories to reduce greenwashing, improvements to the definition of sustainable investments, simplification to the way disclosures are presented to investors, and other technical suggestions including on which products should fall under the scope of SFDR and on how to improve disclosures regarding the negative impact of investments on people and the environment.

In addition, the ESAs cover the need for conduct consumer testing before putting forward any policy proposals to review the SFDR, such as to introduce a categorisation system and/or an indicator.

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