Last week’s Brussels plenary vote delaying agreement on Europe’s Sustainability Omnibus package could prolong timelines for updating green fund rules in the Sustainable Finance Disclosure Regulation (SFDR), potentially by more than 18 months.
MEPs voted against a compromise deal which would pare back reporting requirements under the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), meaning the European Parliament has not finalised its position ahead of trilogue negotiations with EU member states.
According to Richard Gardiner, Interim Head of EU Policy at environmental charity ShareAction, linkages between the omnibus and the SFDR review mean the latter may not be published as scheduled in November.
“Given we will most likely not have a deal on the corporate reporting rules until the end of the year, you’d have to think that that will have an impact,” said Gardiner, speaking on Sustainable Investor’s ‘Risk, Return and Responsibility’ podcast.
Certainty on corporate sustainability reporting rules for European firm is seen as a prerequisite for setting new requirements for asset managers regarding categorisation, construction and disclosures for sustainable investment vehicles.
The European Commission is expected to propose new fund categories in its SFDR review, including one focused in transition-related investments. Gardiner warned that the changes to European legislative procedures by the omnibus process could also add a further layer of uncertainty.
“Even when the proposal comes out, given the fact that the process so far has been quite different, it’s going to be difficult to understand how you can predict the process of when you will have an answer. It used to be that you could always say 18 months, a year maybe, now you really don’t know,” he said.
The omnibus package will now go back for another round of negotiation in the European Parliament following fractious discussions in which the centre-right European People’s Party threatened to rely on support from hard-right parties to push through its proposals.
Gardiner said he regarded the parliament’s final position on the omnibus as “completely unknown” at this stage, causing extended uncertainty for asset managers and corporates.
“If they’re trying to plan a two, three, four-year horizon for systems or if they have SFDR systems in place [and are wondering] how they alter them, it’s very difficult to say for sure what they should be doing at the moment,” he added.
ShareAction was one of seven signatories to a letter calling on EU Commissioners to make stewardship requirements a core part of the SFDR review.
The second episode of Risk, Return and Responsibility will be published later this week.
