The European Supervisory Authorities have published a joint opinion assessing the EU Sustainable Finance Disclosure Regulation. The opinion proposes simplification of product categories under the existing regulation, following confusion among retail investors about SFDR templates and the labelling of products as “Article 8” or “Article 9” as a method of quality assurance, leading to greenwashing risks. It is argued that disclosures should be jargon free, empowering investors to understand the underlying sustainability profile of financial products. The ESAs recommend the introduction of a product classification system based on regulatory categories or sustainability indicators. The ESAs suggest two product categories, “sustainable” and “transition”. The need for an unambiguous definition of “sustainability” that differentiates between “environmentally” and “socially” sustainable categories is noted. The ESAs strongly recommend the European Commission ensures that sustainability disclosures cater to different investor needs and that the Commission implement a sustainability indicator that grades financial products, indicating whether it is environmentally sustainable, socially sustainable, or both.
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