“Consistent, comparable and well-sequenced taxonomy alignment reporting at entity and product level is essential to the proper functioning of the EU´s sustainable finance regime..."
EFAMA has published its response to a consultation on the draft delegated act under Article 8 of the Taxonomy.
Dominik Hatiar, Regulatory Policy Adviser at EFAMA, commented: “Consistent,
comparable and well-sequenced taxonomy alignment reporting at entity
and product level is essential to the proper functioning of the EU´s
sustainable finance regime. We welcome the proposed transitional period
for 2022 under the Article 8 draft delegated act entity disclosures.
However, the resulting absence of taxonomy-alignment information
will inhibit other disclosure obligations taking effect in 2022.
Therefore, the application timelines of the SFDR taxonomy-related
product disclosures and of the minimum proportion of taxonomy-aligned
investments requirements in client´s sustainability preferences under
MiFID II and of the EU Ecolabel, should be aligned with this
transitional period”.
EFAMA
propose six recommendations to ensure consistent taxonomy
implementation timelines and metrics under the EU´s sustainable finance
regime:
- Application
timelines of taxonomy-related product disclosures in SFDR, ESG updates
to MiFID II and IDD delegated acts and the Ecolabel should be aligned
with the proposed transitional period.
- Without
the taxonomyalignment information from investee companies, financial
market participants cannot be expected to disclose taxonomy alignment of
Article 8 and 9 products during the transitional period.
- The
amending delegated acts to MiFID II and IDD introduce the possibility
for clients to indicate their preferred minimum proportion of
taxonomy-aligned investments as defined in Article 2(1). However, during
the transitional period, products will not be able to commit to a
“minimum threshold” of such investments as of October 2022, when the
amended delegated acts should become effective.
- The
transitional period also means that the practical applicability of the
EU Ecolabel for retail financial products will start only on 1 January
2023, given that its portfolio ‘greenness’ calculation formula is
dependent on disclosures of Turnover and CapEx aligned with the
taxonomy.
- Financial undertakings´ taxonomy disclosures cannot take effect at the same time as disclosures of investee-companies.
- Following
the transitional period in 2022, financial undertakings should be
provided in 2023 with a one year, best-effort period to integrate
taxonomy alignment information from investee companies. Such sequencing
of taxonomy alignment reporting would allow financial undertakings to
collect taxonomy alignment information from companies throughout 2023,
when this data becomes available.
- Taxonomy eligibility disclosure requirements during the transitional period could mislead investors.
- The
requirement for asset managers to disclose the proportion of eligible
activities in 2022 may mislead market participants in their
interpretation of this indicator. Investors might interpret this
percentage as the proportion of taxonomy aligned activities that meet
its technical screening criteria, whereas it only informs about the
proportion of economic activities covered by the taxonomy, which do not
necessarily meet the criteria. For example, a fund´s portfolio may have
70% of taxonomy eligible activities, but only 5% taxonomy aligned. We
recommend that the Commission reconsiders the utility of disclosing this
indicator for financial undertakings during the transitional period.
- Taxonomy alignment methodologies at entity and product levels need to be consistent.
- The
treatment of non-assessable assets (cash, sovereign bonds, derivatives)
in the taxonomy-related amendments to the draft SFDR RTS should be
fully aligned with the final text of this underlying delegated act.
Currently, EFAMA sees several inconsistencies between the two Level 2
measures. For example, the latter recommended the inclusion of sovereign
bonds in the denominator, whereas this delegated act recommends their
exclusion.
- Voluntary taxonomy disclosures by non-NFRD firms are needed sooner than in 2025.
- Limiting
eligible firms for taxonomy alignment to those subject to NFRD would
incentivise sustainable investments in European large cap companies, to
the detriment of green SMEs and non-EU companies. If the delegated act
allows voluntary disclosures of non-NFRD companies only as of 2025, two
years after the disclosures of NFRD entities, it could result in a
jurisdictional and company size bias in sustainable investment flows.
EFAMA recommends accepting audited, voluntary taxonomy disclosures by
non-NFRD/CSRD entities at the same time as disclosures by NFRD
companies.
- Screening of all assets under management against the taxonomy at the entity and SFDR Article 6 product-level should be optional.
- A
mandatory requirement for asset managers subject to NFRD/CSRD to screen
all assets under management against the taxonomy would be
disproportionate, as taxonomy aligned activities are expected to show
higher concentration in Article 8 and 9 SFDR products. We recommend that
asset managers be required to provide taxonomy alignment disclosures
for Article 8 and 9 funds and have the possibility to conduct taxonomy
screening of Article 6 SFDR fund portfolios on an optional basis.
The full response to the consultation can be accessed through the following link
EFAMA
© EFAMA - European Fund and Asset Management Association
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