New product categorisation under SFDR
The Platform on Sustainable Finance recommends three categories: ESG collection, Transition, Sustainable
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Following the European Commission’s public consultation, the Platform on Sustainable Finance, an advisory body to the European Commission, has published a briefing note for the Commission outlining how a categorisation system for sustainable finance products could be set up and calibrated.
The briefing note outlines a proposal for a categorisation scheme and key considerations for the Commission as part of the Sustainable Finance Disclosure Regulation (SFDR) review process. Key consideration of the proposal includes a strong interlinkage with investors` sustainability preferences, a seamless transition by streamlining existing elements of SFDR and the wider sustainable finance framework, in particular indicators used to measure sustainability and the potential implications of introducing a new categorisation system on existing financial products.
The Platform recommends categorising products with the following sustainability strategies
- Sustainable: Contributions through taxonomy‑aligned investments or sustainable investments with no significant harmful activities or assets based on a more concise definition consistent with the taxonomy
- Transition: Investments or portfolios supporting the transition to net zero and a sustainable economy, avoiding carbon lock‑ins, per the Commission's recommendations on facilitating financing for the transition to a sustainable economy
- ESG collection: excluding significantly harmful investments / activities, investing in assets with better environmental and/or social criteria or applying various sustainability features
All other products should be identified as unclassified products, the Platform recommends.
The categories aim to reflect the overarching sustainability objective of financial products, focusing on the needs of retail investors. To be effective, it is proposed to align sustainability preferences with the categories.
The briefing note is accompanied by an annex with guidance on setting thresholds and supporting data. The annex shows primary findings on the current state of the ESG markets and the potential impact which setting certain thresholds could have on current products falling under the scope of Article 8 and Article 9 of the SFDR. It also provides guidance on steps which are useful to determine possible thresholds for categories.