Financial organization ACCA urges the EU to streamline the reporting requirements for sustainable finance regulations
The Association of Chartered Certified Accountants (ACCA) has urged the European Commission to reconsider the Sustainable Finance Disclosure Regulation (SFDR) with a focus on simplifying and reducing the reporting burdens for smaller firms.
Joe Fitzsimons, Regional Lead Policy and Insights at EEMA & UK, ACCA, encourages the EC to use the revisions process as an opportunity to influence wider global regulations.
The SFDR, in effect since 2021, requires financial market participants to communicate sustainability information to investors. However, the regulation has limited applicability for smaller firms with limited resources to comply with its requirements.
One of the key changes proposed by ACCA is the exemption of financial and non-financial firms from reporting on non-material economic activities, specifically those activities generating less than 10% of revenue, capital expenditure (CapEx), or operational expenditure (OpEx). This change aims to focus reporting efforts on the most significant sustainability impacts and reduce unnecessary compliance workload.
The ACCA believes that this exemption is a significant step towards streamlining sustainability disclosures and improving practical implementation for market participants. By limiting detailed SFDR reporting requirements to material activities above this 10% threshold, the ACCA seeks to make regulatory compliance more proportionate and less complex for firms without compromising the quality of sustainability information reported.
The ACCA also suggests creating more flexibility and phasing in the regulation's implementation, as well as a transition-focused approach. The organisation believes that the SFDR has an insufficient focus on social factors and calls for the Commission to consider how social elements can be incorporated further into product categories.
Additionally, ACCA notes that the current Article 8 and Article 9 system is identified as "being stringent to the point of a barrier to entry." The organisation proposes potential categories that would reflect the various sustainability objectives of the financial products, such as products contributing to a sustainability objective, products contributing to the transition, or products contributing to other ESG strategies.
Furthermore, the large volume of data required under the SFDR can strain asset managers' budgets and lead to sustainable financial products being deprioritized. ACCA agrees with the Commission's decision to reconsider the regulation's product categorization approach and calls on the Commission to combat greenwashing and simplify and streamline the SFDR requirements.
Lastly, ACCA has expressed concerns about the lack of strong enforcement mechanisms in the SFDR, which may allow some asset managers to not fully comply with the regulation. The European Commission is exploring the possibility of categorizing financial products that make sustainability-related claims, and ACCA agrees with this decision.
In conclusion, ACCA's call for changes to the SFDR aims to make the regulation more practical and accessible for smaller firms, while maintaining its essential purpose of promoting transparency and sustainable practices in the financial sector.
- The ACCA advocates for a policy-and-legislation revision of the Sustainable Finance Disclosure Regulation (SFDR), focusing on simplifying and reducing reporting burdens for smaller businesses to ensure sustainable finance is an accessible and practical method for all size businesses in the finance sector.
- In their proposal, the ACCA suggests generating flexibility in the implementation of the SFDR, a phased-in approach, and the incorporation of social factors into product categories, aiming to make the regulation more cooperative with the business and politics climate.
- To combat greenwashing and ensure transparency in sustainable finance, the ACCA supports the European Commission's emphasis on strengthening enforcement mechanisms, simplifying and streamlining SFDR requirements, and developing clear and understandable product categories in the general-news landscape of the financial market.
