The EU's sustainable financing framework needs new measures to help reduce the risk of greenwashing. Among the regulations proposed by the nominee for European Commissioner for Financial Services and Savings and Investment Union Maria Luis Albuquerque, are green labels and transition labels for sustainable investment products, as well as reduced reporting burdens for smaller market participants, reports esgtoday.com.
During her hearing on Wednesday, Albuquerque made her case that the EU's Sustainable Finance Disclosure Regulation (SFDR) could more effectively address the risk of greenwashing by introducing a labeling regime that clearly communicates sustainability features of investment products.
In 2023, the European Commission launched a comprehensive review of the SFDR framework, which aims to establish harmonized rules for financial market participants, including investors and advisers, on transparency regarding the integration of sustainability risks and the reporting of adverse sustainability impacts in their processes and the provision of information related to sustainability in relation to financial products.
The regulation currently includes classification levels for sustainability-focused investment funds, each with different disclosure requirements, including "Article 8" funds that "promote environmental or social characteristics or a combination of these characteristics," and the more stringent "Article 9" funds. Article 8', "which aim at sustainable investments." However, in its review, the Commission expressed concern that Article 9 and XNUMX classifications are being used as de facto quality labels for sustainability, raising potential risks of greenwashing.
Albuquerque's concerns
“The framework is being misused as a pseudo-labelling regime and this creates risks of greenwashing as there are products that are marketed and sold as 'sustainable' and we are not really sure if they are sustainable or not. This is a problem. Therefore, if I become a European Commissioner, I will look into the possibility of creating an appropriate labeling system", she pointed out.
María Luis Albuquerque said that the labeling system should have a label for green investments as well as investments in transition to support companies that do not yet meet sustainability criteria, but "that are moving towards sustainable development." According to her, this is very important because that is actually where most of our manufacturing sector is.
"I wish to discuss and propose a regime that is actually adequate for labeling, where the labeling of a product as persistent or transient, or whatever the label is, actually corresponds to what that product . . . is." And that obviously means setting minimum criteria, and they should be easy to understand and easy to apply," she added.
The commissioner-designate also promised to explore ways to help make the sustainable finance framework suitable for smaller players by helping to ease reporting requirements and regulatory burdens.
"In terms of sustainable finance, I think we can do a lot to make the framework more usable, to make it more proportionate for smaller companies, for smaller market players, to fix the overlaps that exist. There are overlaps, there are inconsistencies, there are probably reporting requirements that could be streamlined,” Albuquerque commented.
The election by European MEPs of the full College of Commissioners is scheduled to take place during the plenary session scheduled for 25-28 November.
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