The European Fund Management and Asset Management Association (Efama) has called on EU supervisors to delay its SFDR reporting rules, citing what it says are an unrealistic deadline, inconsistent reporting standards and high costs of procuring and processing data.
The SFDR was introduced in March this year, requiring firms to classify their funds as Non-Green, Light Green or Dark Green, as well as disclosing the sustainability credentials of their investments and overall funds.
The most rigorous reporting requirements, or Level 2 rules, apply to Light and Dark Green funds from 1 January 2022. That leaves asset managers little time to work out how aligned their investments are to the EU Taxonomy, which itself is still being finalised.
According to Efama, however, the current schedule for asset managers is unrealistic. ‘We urge the European Commission to provide a transitional period in the first year of the Taxonomy’s application,’ said policy advisor, Dominik Hatiar.
The Association was responding to the joint European Supervisory Authorities (ESA) consultation on taxonomy-related sustainability disclosures. It also highlighted a number of other shortcomings, including inconsistencies between the Taxonomy and other EU sustainability initiatives and the cost of procuring ESG data, particularly as EU companies won’t have to make Taxonomy related ESG disclosures until next year.
‘Due to the market concentration amongst ESG data, research and ratings providers, there is a risk for exorbitant fees being charged by taxonomy data providers, leading to increased costs for end-investors,’ Efama noted. ‘Higher costs would be detrimental for smaller asset managers and create barriers to entry for new players.’
While ESMA has outlined its intentions to regulate and streamline ESG data, these initiatives are still in their early stages, and hopes that the data providers may someday resemble credit ratings’ agencies seem some way off.
That means firms are having to contract multiple vendors, particularly given the glaring inconsistencies or data gaps between different datasets.
The Taxonomy has attracted much controversy since it was first proposed, and Efama are not alone in calling for delays. Last year the Association of the Luxembourg Fund Industry (ALFI) called on the European Commission to postpone the application date of SFDR to 1 January 2022, to bring it in line with the implementation date of the Taxonomy.
Their proposal was ignored as the SFDR went ahead as planned in March, and it remains to be seen how EU supervisors will respond to Efama. Yet even in the unlikely event that a transition period is granted, fund managers still have much work to do to gear up for the EU Taxonomy and the huge changes SFDR will bring from next year.