The three European Supervisory Authorities (ESA) – EBA, EIOPA, and ESMA – have recently published a joint opinion on the Sustainable Finance Disclosure Regulation (SFDR), proposing significant changes to enhance transparency and reduce greenwashing risks. The ESAs call for a coherent and sustainable financial framework that considers both the green transition and increased consumer protection. 

The authorities focus on introducing simple and clear categories for financial products, suggesting two voluntary product categories: “sustainable” and “transition.” The “sustainable” category would cover products investing in activities that are already environmentally and/or socially sustainable, while the “transition” category would include products investing in activities that are not yet sustainable but are improving. The ESAs believe that this categorization can help consumers better understand the objectives of financial products, reducing greenwashing risks. 

An interesting proposal is the introduction of a sustainability indicator, which would classify financial products such as investment funds, life insurance, and pension products. This indicator could refer to environmental, social, or both types of sustainability, illustrating sustainability characteristics on a scale. To ensure the reliability of this system, the ESAs emphasize the importance of basing it on clear and objective criteria. 

The ESAs also highlight the need to align SFDR disclosures with international standards to ensure global consistency and comparability. A product classification system based on regulatory categories or sustainability indicators could help consumers navigate better and address greenwashing issues arising from the misuse of information under Articles 8 and 9 of the SFDR. 

The ESAs recommend that the European Commission conduct thorough consumer testing and gather feedback through a public consultation, involving investors, businesses, and trade associations. This feedback will be crucial in defining the next steps of the regulation. 

The Commission is currently reviewing the SFDR with the goal of improving transparency. Among the ESA recommendations, it is suggested that sustainability information be adequate for different types of investors and consider the specificities of distribution channels, including digital ones. The ESAs also stress the importance of completing the EU taxonomy and extending it to social sustainability to provide a scientific reference point and harmonize disclosures. 

Finally, the ESAs encourage the Commission to consider including other products within the scope of the SFDR and to consider information on principal adverse impact (PAI) indicators for all financial products. The authorities are ready to support the Commission in providing the necessary additional technical assistance to improve the European regulatory framework for sustainable finance.