PensionsEurope’s Position Paper on the SFDR Level 1 Review: Response to the Joint ESAs’ Opinion

15 November 2024

The current SFDR framework has led to significant implementation challenges for pension funds, which we highlighted previously in our response to the targeted consultation on the implementation of the SFDR in December 2023.

Introduction
PensionsEurope welcomes the ongoing efforts to enhance the framework of the Sustainable Finance Disclosure Regulation (SFDR). Over the summer, three reports were published on this topic, including an assessment commissioned by the ECON Committee of the European Parliament and two opinions respectively from the ESAs and ESMA.
We support the European Commission's ambition to drive the transition towards a sustainable economy by improving sustainability reporting standards. However, the current SFDR framework has led to significant implementation challenges for pension funds, which we highlighted previously in our response to the targeted consultation on the implementation of the SFDR in December 2023. We stress that the review of the SFDR should align with President von der Leyen’s goal to reduce reporting requirements by 25%. However, the ESAs’ proposal would substantially increase the regulatory burden for IORPs.
Most crucially, the horizontal approach of the SFDR is presenting some challenges to pension funds by requiring the same framework to apply to a broad group of divergent financial market participants (FMPs) and products. We believe the framework is mainly designed for retail investment funds, while pension funds are different in at least three significant ways. First, in many or most cases members are automatically and mandatorily enrolled and have no investment choice. Second, the portfolio of pension funds is far more complex than most retail investment products and typically covers a broad range of listed and unlisted assets. Third, the product-level and entity-level differentiation is, in many cases, irrelevant as the pension fund (entity) only offers a single scheme (product).
PensionsEurope is pleased that these recent publications recognise that the SFDR, in its current form, which has only fully been operational since 2023, is not working as intended. In this paper, we will present our perspectives on these workstreams, with a particular focus on the Joint Opinion paper from the ESAs.
In light of the ongoing discussions, we find it crucial that the SFDR Level 1, the draft Regulatory Technical Standards proposed to the ESAs, and any potential amendments to the IORP II Directive concerning sustainability are well-aligned. This will provide legal certainty while preventing legislative overlap and double efforts.
Regardless of how the SFDR framework evolves, the regulation must ensure that investors and recipients receive clear and comprehensible information about how capital can effectively be directed toward financing the transition. The information should also be tailored to the specific needs of its recipients.

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