DWS calls for more stewardship disclosures in SFDR reform

Firm opposes mandatory baseline disclosures but backs new labelling system, while BVI and Eurosif also publish consultation responses.

DWS has called for greater disclosure on stewardship to be included in reforms to the EU’s Sustainable Finance Disclosure Regulation (SFDR).

In response to the European Commission’s consultation on wholesale SFDR reforms, which closed just before Christmas, the €860 billion asset manager argued for greater disclosure on the “quality and quantity” of engagement, on both the investment and policy level.

Funds looking to qualify for any future transition label should be subject to minimum stewardship standards and reporting, it added.

Such a move would run counter to new labelling standards in the UK, where requirements on stewardship for the transition label were reduced following market feedback.

The battle lines over SFDR were drawn towards the end of December as market participants set out their views on potential reforms and put forward proposals on future labelling and disclosure systems.

The European Commission extended the deadline for the consultation shortly before it was due to close, so responses continued to flow in during the week before Christmas.

While agreeing that the objective of SFDR is to a large extent still relevant, DWS said the disclosure framework was largely ineffective in achieving specific goals, including increased transparency for end-investors on sustainability risks and impacts, and channelling capital towards sustainable investments.

The only goal that the German asset manager “strongly agreed” had been achieved was ensuring that the remuneration policies of market participants are consistent with the integration of sustainability risks.

In line with a broad majority of respondents to the consultation that publicly shared their views, DWS backed the introduction of new categories for funds and abandoning Articles 8 and 9. The exceptions have been a number of French managers and Lombard Odier Investment Managers, which opposed this reform.

DWS was part of the “great reclassification” of Article 8 and 9 funds in 2022 and early 2023, downgrading five active funds and 10 Paris-aligned benchmarks from Article 9.

Mandatory reporting 

Germany-based DWS bucked the trend by opposing the extension of mandatory sustainability reporting to all financial products, a change that has been supported by both large asset managers and industry groups. DWS said it strongly opposed a mandatory baseline.

This position was backed by Germany’s fund manager industry association (BVI). In its response, the group said detailed disclosure requirements should only apply to products that make explicit sustainability claims.

It argued that sustainability-related disclosures are “often” mistaken for dedicated commitments to sustainability outcomes. Limiting the disclosures would avoid confusion among investors and “might mitigate greenwashing allegations”.

While both the BVI and DWS oppose the introduction of mandatory baseline reporting, they did make suggestions as to how a future regime should be designed if one is implemented.

DWS said disclosures should cover only the climate-related principal adverse impact indicators and disclosures on the share of taxonomy-aligned revenues.

According to the BVI, they should focus on a small number of easily comparable indicators and only be in place for retail products, adding that standardised information “is of no value” to institutional investors.

Eurosif response 

Another later response to the consultation came from Eurosif, which backed a three-label categorisation system with stringent measures for unlabelled funds.

The industry group proposed three categories. A “sustainable investments” product would demonstrate an alignment with positive impacts or financing already sustainable activities, while a “transition investments” fund would demonstrate a measurable contribution to positive real-world impact, either through engagement or by investing in companies implementing a credible transition plan.

A third label would cover products with a “binding environmental or social factors” objective. These funds would integrate environmental or social factors at the heart of the investment process, and could include exclusions and positive screening or the consideration of specific KPIs.

Funds that do not fall into its three proposed categories should not be allowed to make any ESG-related claims, Eurosif said.

It also backed minimum disclosures for all financial products, with additional disclosures on a comply-or-explain basis for non-labelled products covering topics such as engagement or exclusion strategies.