Europe’s three primary financial regulatory agencies, the European Supervisory Authorities (ESAs), have unveiled a delay in the review of key rules for financial products under the Sustainable Finance Disclosure Regulation (SFDR), pushing back its response by up to 6 months from the European Commission’s original April 28,2023 deadline.

The ESAs, which include The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA), had been requested by the EU Commission to review indicators for the SFDR’s indicators for principal adverse impact (PAI) and financial product disclosures.

The EU SFDR forms part of the EU’s Action Plan on financing sustainable growth. The regulation aims to establish harmonized rules for financial market participants including investors and advisers on transparency regarding the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability‐related information with respect to financial products.

The regulation includes classification levels for sustainability-focused investment funds, including ‘Article 8’ funds that “promote environmental or social characteristics or a combination of those characteristics,” and the more stringent ‘Article 9’ funds, “which have sustainable investment as their objective.”

While asset managers with sustainable investment products will be required to begin providing disclosures under SFDR from January 2023, uncertainty remains around some of the key reporting details, such as the PAI requirements. Recently, for example, asset manager Amundi reclassified nearly all of its $45 billion Article 9 funds to lower sustainability levels, saying that “the current regulatory framework does not yet allow the financial industry to respond in a uniform manner as to what should be considered “sustainable” or not.”

In a letter to European Commission Financial Stability, Financial Services, and the Capital Markets Union Director General John Berrigan, the ESA’s stated that they identified several challenges in delivering the requested input in the original timeframe, including the need for consultation with stakeholders and expert bodies, and the technical demands of working on aspects such as the Do Not Significantly Harm (DNSH) framework and to develop formulae for the PAI indicators.

Additionally, the ESAs said that it was not possible to focus on the review, due to an urgent request by the Commission for the authorities to work on SFDR nuclear and gas-related rules.

Click here to view the ESAs’ letter.