EC adopts a proposal to amend SFDR simplifying transparency rules for sustainable financial products

The European Commission (EC) has adopted a proposal for a regulation to amend the Sustainable Finance Disclosure Regulation (SFDR). The SFDR, which has been in application since March 2021, sets detailed sustainability disclosure requirements for financial intermediaries and financial products regarding consideration of environmental, social, and governance (ESG) factors. The proposed amendments are aimed at simplifying the framework and making disclosures more retail friendly. An EC review found that the current regime produces lengthy, complex disclosures that hinder investor understanding and comparability.

Key elements of the proposal include: (i) removing entity-level disclosure requirements on principal adverse impacts and reducing product-level requirements; (ii) introducing a new clear categorisation system comprising of three product categories for ESG claims, based on existing market practice and the latest regulatory guidance; and (iii) repealing Commission Delegated Regulation (EU) 2022/1288 supplementing the SFDR, to remove the complex templates and entity-level requirements under it. The EC proposal will now be submitted to the European Parliament and Council of the EU for their deliberation.

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