Slim majority back universal sustainability disclosures in SFDR consultation

Most investors back introducing label system but split over UK-style versus Article 8 and 9 basis as full results released.

A slim majority of financial market participants have supported the introduction of sustainability disclosures for all financial products in the European Commission’s consultation on the future of the Sustainable Finance Disclosure Regulation (SFDR).

The consultation, which closed at the end of last year, polled the market on a broad range of topics, including product disclosures, to what extent the regulation had achieved its goals and reforms to the Article 8 and 9 categories. A full set of responses has now been released by the Commission.

Analysis of the 142 responses from financial market participants, carried out by Commerzbank, showed that 54 percent backed introducing a baseline of sustainability disclosures for all funds, while 37 percent disagreed and the remainder were unsure.

Analysis by Responsible Investor of responses from the largest financial sector respondents shows that the greatest support for universal disclosure came from French and Dutch firms.

BNP Paribas Group, CNP Assurances, Amundi and its parent Crédit Agricole were greatly in favour of introducing the disclosures, while APG Asset Management, Aegon Investment Management and Robeco also supported the idea.

The opposition was mainly composed of German, UK and US investment houses. DWS and Union Investment rejected the suggestion, as did State Street Global Advisors, T Rowe Price and Abdrn.

Societe Generale broke with its national peers and opposed the move, while Schroders, Nuveen and JPMorgan Asset Management said they saw some utility in universal disclosures.

The introduction of a labelling or category system for sustainable funds received greater backing, with the Commerzbank analysis finding 76 percent of financial market participants in favour.

However, views were mixed on what this system should be based on, with 53 percent backing the replacement of Articles 8 and 9 with an alternative system and 27 percent backing their retention.

The clearest majority in favour of a new approach was among large firms with more than 250 employees, with 19 of 32 respondents supporting an overhauled system not based on the existing categories.

If Article 8 and 9 are scrapped and replaced by a new categorisation system, the main candidate would be one proposed by the Commission in the survey. This broadly mirrors the three labels in the UK’s Sustainability Disclosure Regulation, with the addition of a fourth exclusions-focused category.

However, this has not prevented survey respondents including Triodos Investment Management and Danish industry body Finans Danmark from proposing their own approaches.

Stephan Kippe, head of ESG research at Commerzbank, said in the note: “While these results show slight majorities, they are far from being unambiguous enough to predict the final outcome of the regulatory process.”

The Commission is expected to publish an update on the consultation this spring, although its exact format is unclear.

Increasingly perplexing

While some respondents opted to remain anonymous, many of the largest managers in Europe and the US put their names to their thoughts on the future of SFDR and the regulation’s achievements so far.

These opinions are, broadly speaking, negative.

Some investors welcomed improvements driven by the rules to areas including transparency and governance. But they also warned that inherent contradictions, complexity and the usage of SFDR reporting categories as labels had reduced the effectiveness of the regulation.

Of a sample of 20 of the largest banks and asset managers with public responses, a vast majority disagreed that the costs of SFDR disclosure are proportionate to the benefits it creates. None of the sample organisations said they “totally” or “mostly” agreed, and just two – DWS and M&G Investments – said they were uncertain.

In its response to a question about quantitative costs, Federated Hermes said they “far outweigh the benefits”.

“The number of resources across different departments, the technological work to meet reporting requirements and external resources used to understand the regulation in areas where there is lack of clarity has been a huge burden on us,” the investor added.

“Scant evidence suggests that capital has been effectively redirected as intended; instead, the financial market has grown increasingly intricate and perplexing.”

JPMorgan Asset Management estimated that it had the equivalent of 10 full-time employees working on SFDR disclosures, while Robeco said it had between 10 and 15.