Response to the ESAs consultation on EU taxonomy-related sustainability product-level disclosures

Consultation response
Finance Watch
Regulation(s) covered in this publication
  • Sustainable Finance Disclosure Regulation (SFDR)
  • Taxonomy
Download the publication 14 pages, English

Our response to the ESAs consultation on EU taxonomy-related sustainability product-level disclosures has been submitted and is now public. Some of our key messages are listed below.

Finance Watch responded to the ESAs consultation on the taxonomy-related sustainability disclosures pursuant to Article 8(4), 9(6) and 11(5) of Regulation (EU) 2019/2088 (known as SFDR).

These Articles, introduced in SFRD through the Article 25 of the EU Taxonomy Regulation, empower the European Supervisory Authorities to develop additional disclosure obligations for products making use of the environmental taxonomy, namely so-called Art. 9 (“dark green”) and Art. 8 (“light green”) products as defined under SFDR. The disclosure requirements, added through the EU Taxonomy, refer to the information that needs to be published according to Articles 5 and 6 of the Taxonomy Regulation. Hence, a frequent reference in the paper to Art. 5 and Art. 6 fund-level taxonomy-related disclosures.

Finance Watch key messages are:

  • Finance Watch favours the creation of a “single rulebook” for sustainability disclosures with the aim to reduce the complexity, duplication, potential inconsistencies or overlaps.
  • DNSH criteria: we call against exempting EU taxonomy-compliant investments from screening against the “Do No Significant Harm” (DNSH) criteria in SFDR.
  • Funds’ taxonomy-alignment ratio:
    • Leaving flexibility to a financial market participant (FMP) to choose between three metrics (the taxonomy-aligned turnover, CAPEX or OPEX), in case of non-financial companies, when calculating fund’s taxonomy-alignment ratio, could result in major greenwashing and insufficient comparability across funds or the end-investors.
    • Instead, FMPs should calculate a weighted average ratio composed of the taxonomy-aligned turnover, CAPEX and OPEX for each non-financial company within a fundThe respective weights should reflect the relative proportion of turnover, CAPEX and OPEX.
  • Derivatives should be assessed by their nature when calculating funds’ taxonomy-alignment ratio.
    • Their gross positions can be included in the fund’s taxonomy-alignment ratio when they are used for hedging purposes of investments in taxonomy-aligned economic activities.
    • Short exposures to taxonomy-aligned investments should be netted.
    • Derivatives that meet neither of the above two conditions, should be excluded from the numerator of the fund’s taxonomy-alignment ratio. However, they should be included in the ratio’s denominator covering all investments.
  • We call for a mandatory external verification / assurance of the taxonomy alignment disclosed by investee companies in line with Art. 8 TR as well as the taxonomy alignment disclosed by FMPs in line with Art. 5 and 6 TR. This is essential to avoid greenwashing and provide certainty and reliability of information to end investors.
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