Irish fund association set to back new labelling approach to SFDR

The industry association for Irish asset managers is set to back the abolition of Article 8 and 9 and the introduction of a fund labelling approach in its response to the European Commission’s consultation on SFDR reforms.

Responsible Investor understands that Irish Funds’ members had initially backed retaining Articles 8 and 9 to avoid having potentially wasted the effort and money put in to complying with the existing regulation. However, after debate, it was decided that putting a functioning categorisation system in place was more important.

The group’s response backs retaining some parts of the regulation, including some Principal Adverse Impact disclosures, but it plans to recommend widespread changes in other areas.

In September, the European Commission released a wide-ranging consultation on the future of SFDR. The 44-page questionnaire covers a series of topics including proposals to abolish the Article 8 and 9 system, changes to disclosure requirements and whether the purpose of the regulation itself is still relevant.

With the consultation closing in a month, market participants are beginning to finalise their responses as well as speaking publicly about their feedback. At the start of November, the Dutch financial regulator AFM came out in favour of wholesale reform, calling for mandatory adverse impact reporting for all financial products.

The proposed Irish Funds response follows a similar pattern.

While its members would be unlikely to back new sustainability disclosures for all products, the group is set to call for all funds to remain subject to the minimum sustainability disclosures currently contained in Article 6 of SFDR.

Turning to dedicated sustainability and ESG funds, the industry body is planning to recommend that pre-contractual disclosures for Articles 8 and 9 be merged, with the two reporting categories subsequently abolished in favour of the labelling approach proposed by the commission.

The commission’s proposed labelling approach broadly mirrors that put forward by the UK, with fund categories for impact, transition and funds meeting sustainability standards or themes. A fourth commission category would cover funds with exclusion criteria.

Irish Funds’ draft response to the consultation gives its backing to all of the proposed labels, but the group wants the categories to be given retail-friendly naming conventions. The exclusions category, for instance, could be called “product seeking to avoid harm” instead of being given a sustainability label.

Members of the fund group also indicated in their feedback that entity-level principal adverse impact disclosures were of limited value to investors, and that while clients do ask about these disclosures it is to make sure managers are in compliance with SFDR rather than because they have an impact on the decision-making process.