ACCA urges European Commission to improve SFDR classifications

ACCA and the Chartered Institute for Securities and Investment (CISI) have urged the European Commission to influence wider global regulations including SEC greenwashing rules.

It comes in response to the EC’s Targeted Consultation Document: Implementation of the Sustainable Finance Disclosures Regulation (SFDR). 

ACCA and CISI say that to ensure effective regulation, the SFDR needs greater guidance and clarification. The response was informed by the two bodies’ policy positions, sustainability focused engagement across the EU and UK, and roundtable discussion.

Jessica Bingham, policy and insights lead, (EEMA & UK), ACCA, said: “We recognise that SFDR has driven increased transparency for investors, enabling them to make informed decisions based on the sustainability practices of asset managers and the environmental, social, and governance (ESG) characteristics of investments. 

“It has led to greater accountability for asset managers and a stronger emphasis on ESG integration in investment decision-making processes. As we shift to genuine impact investment, asset managers are now recognising the value of impact investing as a means to fulfil their fiduciary duty to investors, while also contributing to societal and environmental progress.”

However, adhering to the SFDR’s extensive disclosure requirements can be costly for asset managers, as it requires gathering and analysing vast amounts of ESG data, developing and implementing new reporting systems, and training staff on the regulation’s intricacies. 

This can put a strain on asset managers’ budgets and limit their resources for other critical initiatives. In some scenarios this has led to sustainability being the first area to cut. 

ACCA and CISI acknowledge that this will improve over time, and the introduction of the Corporate Sustainability Reporting Directive will assist in taking significant strides in the right direction. 

The current SFDR has been a first move in establishing criteria to combat greenwashing. However it is not at present fulfilling its potential to be effective in promoting sustainable finance. 

ACCA and CISI argue that there will continue to be a heavy reliance on estimates and challenges will remain in gathering, measuring and analysing non-financial data. This translates across the non-financial reporting sphere and both ACCA and CISI recognise their role in assisting their members through this transition to ensure relevant capacity building and upskilling. 

George Littlejohn, CISI senior adviser, said: “ACCA and CISI question the extent of positive impact that the SFDR’s mandatory disclosure requirements have had. We believe that in many ways the nature of the regulation has hindered some firms as opposed to inspiring better practice and investment. 

“Despite its positive impacts, the Sustainable Finance Disclosure Regulation (SFDR) has also been met with some criticism and concerns.”