{"id":6969,"date":"2023-03-02T14:14:10","date_gmt":"2023-03-02T14:14:10","guid":{"rendered":"https:\/\/iqeq.com\/?p=6969"},"modified":"2023-08-16T15:15:49","modified_gmt":"2023-08-16T15:15:49","slug":"will-esg-fund-labelling-requirements-kill-sfdr","status":"publish","type":"post","link":"https:\/\/iqeq.com\/insights\/will-esg-fund-labelling-requirements-kill-sfdr\/","title":{"rendered":"Will ESG fund labelling requirements kill SFDR?"},"content":{"rendered":"<section class=\"text-block standard-spacing  \">\n    <div class=\"container fade-in\">\n        <p>The EU\u2019s\u00a0<strong>Sustainable Finance Disclosure Regulation<\/strong>\u00a0(SFDR), which has been in place for about two years, has created notable gaps in understanding and compliance that ESMA is still struggling to fill. The regulator hosted a\u00a0<a href=\"https:\/\/www.esma.europa.eu\/sites\/default\/files\/2023-01\/ESMA34-472-405%20Presentation_%20Public%20hearing%20CP%20on%20Funds%27%20names.pdf\">public hearing<\/a>\u00a0in late January 2023 to discuss fund labelling proposals designed to prevent greenwashing and protect investors from funds misrepresented as supporting ESG initiatives.<\/p>\n<p>ESMA\u2019s consultation period on fund naming guidelines concluded on 20 Feb 2023 and has already generated a significant amount of reaction from the industry, who warn that overly strict guidelines could undermine the intent of the regulation.<\/p>\n<p>Indeed, funds are still struggling to appropriately adhere to\u00a0<a href=\"https:\/\/iqeq.com\/insights\/sfdr-latest-updates-how-good-good-enough\">SFDR updates<\/a>\u00a0that took effect in January 2023. According to\u00a0<a href=\"https:\/\/www.esma.europa.eu\/sites\/default\/files\/2023-01\/ESMA34-472-405%20Presentation_%20Public%20hearing%20CP%20on%20Funds%27%20names.pdf\">ESMA\u2019s analysis<\/a>\u00a0of nearly 30,000 EU-domiciled funds, an estimated 14%\u2014or around 4,000 funds\u2014use at least one ESG or sustainability-related word in the fund name. Asset managers use fund names as a marketing tool, and ESMA\u2019s fears about the growing risk of greenwashing seemed supported by the 534 Article 6 funds with fund names that suggested ESG or sustainable investments.<\/p>\n<h2>What is SFDR and what are the proposed changes?<\/h2>\n<p>Broadly, SFDR is a disclosure requirement for funds relating to their sustainable investments. Under the regulation, a fund can be classified as belonging to one of three categories: Article 6 (no ESG\/sustainability investments), Article 8 (some ESG\/sustainability characteristics), or Article 9 (clear ESG\/sustainability objectives).<\/p>\n<p>Currently, there is no minimum proportion of ESG investments specified for Article 8 funds. But the recent\u00a0<a href=\"https:\/\/www.esma.europa.eu\/sites\/default\/files\/library\/esma34-472-373_guidelines_on_funds_names.pdf\">consultation paper<\/a>\u00a0proposes stricter guidelines, including:<\/p>\n<ul>\n<li>Minimum safeguards (exclusions) based on Paris-aligned benchmarks for all funds using ESG and sustainability terms in the name<\/li>\n<li>80% investment threshold (in terms of environmental or social characteristics or sustainable investment objectives) for funds with ESG and related terms in the name<\/li>\n<li>Additional 50% threshold (sustainable investments as defined by Article 2(17) of SFDR) for funds named using sustainability-related terms<\/li>\n<li>Specific funds (index and impact funds) included<\/li>\n<li>Transitional period of six months for existing funds<\/li>\n<\/ul>\n<h2>The widespread impact of proposed fund labelling rules<\/h2>\n<p>The proposed thresholds would potentially impact an estimated 2,730 funds currently disclosing under Article 8 SFDR.\u00a0<strong>Adding to the confusion is the retroactive requirement issued in May 2022 for pre-SFDR Article 8\/9 funds to adhere to SFDR\u2019s website and periodic disclosures<\/strong>. The precedent of applying current wisdom to previous periods has made fundraising more difficult for many fund managers already, and those disclosing under Article 8 may soon have an even greater barrier.<\/p>\n<p>Among the benefits cited by the EU regulator are easily understood thresholds, upholding standards to meet investor expectations, and minimising the perception of \u2018downgrading\u2019 funds\u2019 disclosures from Article 9 to Article 8 by reinforcing consumer confidence in Article 8 funds.<\/p>\n<p>The outcomes of this most recent consultation period are expected in Q3 2023, with a proposed six-month transition period after the three-month period from when the guidelines have been published.<\/p>\n<p><strong>If you need help navigating SFDR in any form\u2014today\u2019s or tomorrow\u2019s\u2014<\/strong><a href=\"https:\/\/iqeq.com\/iq-eq-compass-esg\"><strong>contact our team today<\/strong><\/a><strong>. We are experts at helping firms navigate regulatory complexity in record time.<\/strong><\/p>\n            <\/div>\n<\/section>\n\n<section class=\"related-section related-section--people related-section--centered standard-spacing\">\n    <div class=\"container\">\n                    <h2>Contact the team<\/h2>\n                <div class=\"cards row-load\">\n            <div class=\"person-card\">\n            <div class=\"bg-img lozad normal\">\n            <img width=\"290\" height=\"192\" class=\"attachment-person_card size-person_card lozad\" alt=\"\" data-src=\"https:\/\/iqeq.com\/wp-content\/uploads\/2023\/04\/Sarmad-Naim-Grey-BG_0-290x192.jpg\" \/>        <\/div>\n        <div class=\"bg-img lozad hover\">\n            <img width=\"290\" height=\"192\" class=\"attachment-person_card size-person_card lozad\" alt=\"\" data-src=\"https:\/\/iqeq.com\/wp-content\/uploads\/2023\/04\/Sarmad-Naim-Green-BG-290x192.jpg\" \/>        <\/div>\n        <div class=\"info\">\n                    <h3>Sarmad Naim<\/h3>\n                <p class=\"job-title\">Principal Consultant, UK<\/p>\n        <div class=\"border\"><\/div>\n                    <p class=\"location\">United Kingdom<\/p>\n                <a href=\"#contact-person\" class=\"link link--deepgray email\">\n            Send email        <\/a>\n                    <a href=\"tel:+442073975480\" class=\"link telephone\">\n                +44 20 7397 5480            <\/a>\n                                    <div class=\"socials\">\n                <a href=\"https:\/\/www.linkedin.com\/in\/sarmad-naim-4371132a\/\" class=\"linkedin\">\n                    <span class=\"screen-reader-text\">LinkedIn<\/span>\n                <\/a>\n            <\/div>\n            <\/div>\n<\/div>        <\/div>\n        <div class=\"button-wrapper\">\n                    <\/div>\n    <\/div>\n<\/section>","protected":false},"excerpt":{"rendered":"","protected":false},"author":5,"featured_media":6970,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","footnotes":""},"categories":[1],"tags":[343],"expertise":[444,17],"service_category":[27],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Will ESG fund labelling requirements kill SFDR? - IQ-EQ<\/title>\n<meta name=\"description\" content=\"The EU\u2019s Sustainable Finance Disclosure Regulation (SFDR) has been in place for two years now and has created notable gaps in compliance that ESMA is still struggling to fill. 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