News 02/11/23

AFM publishes position paper on improving the SFDR

The Dutch Authority for the Financial Markets (AFM) proposes improvements to the Sustainable Finance Disclosure Regulation (SFDR), in the light of the European Commission’s current consultation of the European Commission on a review of the framework. The proposal seeks to make the framework more meaningful to investors and to facilitate the reorientation of capital towards investments with sustainable impact. The paper aims to stimulate further discussion on the direction of the SFDR review and the AFM welcomes discussion on the content.

In short

AFM proposes improvements to the SFDR in the light of current discussions on review of the framework
The SFDR has been an important step forward regarding transparency on sustainability, but disclosures remain difficult to understand and compare
Most sustainable investors seek to make sustainable impact through their investments
AFM proposes the introduction of “transition”, “sustainability”, and “sustainability impact” labels

Consumer-friendly disclosures

Transparency is crucial to facilitate the flow of capital towards the investments that are necessary for the transition to a sustainable economy. SFDR disclosures support investors in making these investment decisions. However, the information is not always easy to understand and compare, especially for retail investors. The AFM therefore proposes improvements to the framework to make the disclosures better tailored to what consumers understand.

Sustainable investors want to make impact

Most sustainable investors seek to make sustainable impact through their investments. Research shows that consumers find it difficult to distinguish between products that make impact versus products that are value-aligned.

Proposal for a sustainable financial product framework that combines quality requirements with disclosures requirements

To ensure alignment with investor expectations and objectives, the AFM proposes to introduce three distinct sustainable product labels that investors can understand: “transition”, “sustainable” and “sustainable impact”. These labels would enable investors to understand the different types of sustainable investment products and how impact can be made. We attach specific minimum quality and disclosure requirements tailored to each of these labels, to address greenwashing risks.

All financial products should provide a minimum set of disclosures on sustainability impact

The AFM is in favour of a disclosure regime that supports a level playing field for all financial products with or without sustainable features. This would mean that all financial products should make disclosures on a limited number of sustainability indicators in order for investors to assess the most important negative impact.