On February 27, ISDA and the Association for Financial Markets in Europe (AFME) published a position paper on the European Commission’s (EC) proposed revisions to the Sustainable Finance Disclosure Regulation (SFDR 2.0). The paper welcomes the EC’s proposal as a strong starting point for negotiations, particularly the introduction of a product categorization framework and more streamlined disclosure requirements. These represent meaningful progress towards a more coherent regime that can effectively support capital flows to the sustainable transition.

From an ISDA perspective, the paper sets out several targeted recommendations to ensure the framework works effectively in practice – especially the need for coherence with related regulatory regimes, alignment of exclusion criteria with the Benchmarks Regulation (BMR) and clearer treatment of derivatives. The paper also calls for key frameworks governing the assessment of clients’ sustainability preferences to be updated swiftly, so they apply at the same time as the revised SFDR. The associations make the following key recommendations:

• Ensure non-SFDR products with sustainability features can be offered to clients under the Markets in Financial Instruments Directive and the Packaged Retail and Insurance-based Investment Products regulation;
• Retain the removal of portfolio management and advisory services from SFDR scope;
• Uphold the simplified disclosure rules and provide immediate burden relief for entity-level disclosures;
• Refine Article 7 criteria to facilitate the provision of transition finance; and
• Integrate product categories with existing market standards and the investable universe for sustainable products.