European Supervisory Authorities Propose Key Amendments to Sustainable Finance Disclosure Regulation

The three European Supervisory Authorities (ESAs) - the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA) - have unveiled significant amendments to the draft Regulatory Technical Standards (RTS) under the Sustainable Finance Disclosure Regulation (SFDR).

Enhancing Sustainability Disclosures Framework

The ESAs have presented their Final Report, outlining crucial revisions to the Delegated Regulation supplementing the SFDR. The proposed amendments aim to fortify the framework for sustainability disclosures within the financial sector. Key highlights include:

1. Introduction of New Social Indicators: The ESAs propose the inclusion of new social indicators to augment the existing sustainability disclosure framework.
2. Streamlining Disclosure of Principal Adverse Impacts: The disclosure framework for the principal adverse impacts of investment decisions on the environment and society is set to be streamlined for greater clarity.
3. Incorporating Greenhouse Gas Emissions Reduction Targets: The ESAs recommend new product disclosures concerning "greenhouse gas emissions reduction" targets, further emphasizing the commitment to environmental sustainability.
4. Technical Revisions to SFDR Delegated Regulation: Various technical adjustments are suggested, covering aspects such as sustainable investments, derivatives treatment, calculation methodologies, and provisions for financial products with underlying investment options.

The proposed amendments will now undergo scrutiny by the European Commission, which is expected to endorse or provide feedback within three months of the ESAs' publication. These draft RTS are positioned independently of the comprehensive assessment of SFDR announced by the European Commission in September 2023.

The Joint Committee of the ESAs received a mandate from the European Commission in April 2022 to review and revise the RTS laid down in the SFDR Delegated Regulation. The ESAs extended the deadline to ensure a thorough review, allowing time for public consultation and consumer testing.

Consumer-Centric Improvements and Simplifications

Following consumer testing exercises in four Member States, the ESAs propose enhancements and simplifications to financial product templates. These changes include a new "dashboard" offering a concise summary of key information.

The ESAs have conducted an impact assessment of the proposed policy choices and provided a feedback statement on the consultation paper. The response from the ESMA Securities and Markets Stakeholder Group (SMSG) to the public consultation is annexed to the final report.

The suggested amendments mark a significant step towards reinforcing sustainability disclosures in the financial sector, aligning with the evolving landscape of ESG considerations.

Note: The European Commission will examine the proposed amendments within the next three months, determining their endorsement or providing feedback.

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