Noting the current use of the SFDR regulation as a labelling system for sustainable funds, the Commission proposes two structures for categorising financial products.
The first option under consideration retains the structure of current regulations and transforms Article 8 / Article 9 reporting requirements into formal financial product categories. The regulator believes that a detailed definition of principles such as sustainable investment, “Do No Significant Harm” (DNSH) and “environmental and social characteristics”, as well as the introduction of minimum sustainability criteria, could facilitate and harmonise the distinction between the two types of product.
The alternative solution presented in the consultation is the creation of new categories of financial products based on the investment strategy applied. The Commission thus proposes classifying funds into 4 thematic categories:
1. Financial products that invest in companies that provide direct solutions to environmental or social issues
2. Financial products that invest in companies that improve their practices
3. Financial products based on an exclusion strategy
4. Financial products that invest in companies in transition
For the time being, the consultation does not specify whether these categories could replace the Article 6 / Article 8 / Article 9 classification, or whether they would simply be an addition to the existing framework. As the SFDR regulation is linked to other regulatory frameworks, such as the Taxonomy and MiFID II, removing the existing classification would affect these other texts and the progress they represent in terms of financial transparency.
The Commission is also considering the introduction of an obligation to verify the alignment of financial products with the relevant product category by an independent third-party body, which would also be required to carry out ongoing checks on product conformity.
Finally, the consultation raises the possibility that all funds offered within the European Union should be subject to certain uniform disclosure requirements, whether or not they implement an ESG investment strategy, to make it easier for investors to understand the sustainability profile of the product concerned.