Why a credible SFDR framework needs more than category criteria

In his second regular column for IPE, Frédéric Ducoulombier of EDHEC Climate Institute argues that a credible categorisation-based SFDR system should require product manufacturers to substantiate how products deserve the category they claim

Regulators have approached the disciplining of sustainability claims in three ways: leaving them to general investor-protection rules, establishing terminology and mandatory disclosures, or creating product categories. These choices are consequential: once regulators define the language and framework through which sustainability considerations are communicated, they give that structure meaning and must assume responsibility for the claims it enables and the expectations it creates.

The EU Sustainable Finance Disclosure Regulation (SFDR) introduced a common vocabulary and extensive sustainability-related disclosures. It aimed to provide investors with comparable and decision-useful information, protect them against misleading claims, and help direct capital towards the transition of the economy.

Five years of experience suggest that detailed sustainability-related information plays only a limited role in investor choice, while the repurposing of SFDR disclosure categories as product labels reveals a demand for simple signposting.