On 2 November 2023, the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) published a position paper on improving the Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088, the SFDR). The AFM proposes these improvements in the light of the European Commission’s current consultation on a review of the SFDR.

According to the AFM, the introduction of the SFDR has been a good step forward in providing investors with sustainability information on financial products. However, the information disclosed under the SFDR is not always easy to understand and compare, particularly for retail investors. Research shows that retail investors find it difficult to assess the true level of sustainability of a financial product based on SFDR disclosures. In addition, the distinction between products reporting under Articles 8 and 9 of the SFDR is not always clear to investors, and the categorisation of financial products under these Articles has led to their misuse as sustainability labels. Such categorisation can be a source of greenwashing. Although the SFDR is not intended to be a labelling scheme, the fact that it is so widely used in this way shows that there is a strong desire in the market to use relatively simple classifications of sustainable products to navigate the complex issue of sustainability in investment.

In order to ensure that the SFDR framework is better suited to assist (retail) investors in making sustainable investment decisions, the AFM proposes, inter alia, the following changes to the SFDR framework:

  1. There should be minimum disclosure requirements for all financial products, with or without sustainability features, to ensure a level playing field.
  2. The current “Article 8” and “Article 9” labels should be removed to address their current misuse as proxy labels.
  3. Three new sustainable product labels should be created. The AFM proposes the creation of specific labels for “transition products”, “sustainable products” and “sustainable impact products”. Each of these products should be subject to minimum quality requirements and each product should have its own set of additional disclosure requirements tailored to the sustainable specificities of that product category.
  4. Other products that do not meet the quality requirements of any of the sustainability labels should be allowed to disclose their ESG information with reduced disclosure requirements.