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It will also contribute to the broader policy objectives of the Sustainable Finance Disclosures Regulation (SFDR) to enhance transparency towards end-investors, hold market participants accountable and fight greenwashing.
To fulfil these objectives, the disclosures should make a clear distinction between the information needed by retail investors and those needed by professional/institutional investors. Considering the broad range of different approaches to ESG integration and sustainable investment, reflected in the variety of products in the market, we believe that the templates should strike the right balance between comparability and flexibility. In our feedback, we also provide recommendations on how to improve the clarity and conciseness of the information presented to end-investors.
EFAMA’s feedback to the ESAs’ survey complements the response to the previous consultation on the draft regulatory technical standards under SFDR1, and its main takeaways are the following:
• Retail investors and professional/institutional investors have different needs. Retail investors need meaningful, comparable and concise disclosures, backed by solid data, while professional/institutional investors require tailored reporting and the proposed templates would bring them little or no value.
We find it important that retail investors remain the recipients of these disclosures, therefore standardised templates should be mandatory for products made available to retail investors and optional for products only intended for professional/institutional investors.
• We believe it is essential that templates ensure a sufficient level of flexibility for investment managers to adapt the information to each specific product and strategy, especially considering the approach of having a single template for products promoting ESG characteristics and for products with sustainable investment objectives.
• The use of icons should be avoided. We find icons would not add meaningful information for end-investors, nor will they improve accessibility. On the contrary, they risk misleading the users of disclosures, moving their attention away from more important information and reducing the space available to report on the products’ features.
• We recommend not to mandate the use of graphs as visual aids in pre-contractual disclosures. The graphical representation of the investments of the product should be moved to website disclosures, where they can be updated more frequently, and it should be at the discretion of the financial market participant to decide whether to use a graphical representation and what type, according to the specificities of the product’s strategy and composition.
• To improve clarity and conciseness, we recommend limiting the document’s length to maximum two or three pages, instead of six. In addition to ensuring retail investors are provided only with meaningful information, in the most accessible format, reducing the template’s length would simplify the inclusion of ESG information in existing disclosures.
We also fear that lengthy ESG templates would place a disproportionate weight on sustainability information, particularly for Article 8 products, while prospective investors must be able to appropriately weigh in all material types of financial and non-financial risks.
1 See also: EFAMA’s response to the ESAs’ consultation on the draft RTS under the Sustainable Finance Disclosures Regulation (1 September 2020)