EFAMA welcomes proposed transitional period under Article 8 of the taxonomy

The European Fund and Asset Management Association (EFAMA) has published its response to a consultation on the draft delegated act under Article 8 of the Taxonomy.  

Dominik Hatiar, Regulatory Policy Advisor at EFAMA, comments: “Consistent, comparable and well-sequenced taxonomy alignment reporting at entity and product level is essential to the proper functioning of the EU´s sustainable finance regime. We welcome the proposed transitional period for 2022 under the Article 8 draft delegated act entity disclosures. However, the resulting absence of taxonomy-alignment information will inhibit other disclosure obligations taking effect in 2022. Therefore, the application timelines of the SFDR taxonomy-related product disclosures and of the minimum proportion of taxonomy-aligned investments requirements in client´s sustainability preferences under MiFID II and of the EU Ecolabel, should be aligned with this transitional period”. 

EFAMA propose six recommendations to ensure consistent taxonomy implementation timelines and metrics under the EU´s sustainable finance regime. 

Application timelines of taxonomy-related product disclosures in SFDR, ESG updates to MiFID II and IDD delegated acts and the Ecolabel should be aligned with the proposed transitional period. Without the taxonomy alignment information from investee companies, financial market participants cannot be expected to disclose taxonomy alignment of Article 8 and 9 products during the transitional period. The amending delegated acts to MiFID II and IDD introduce the possibility for clients to indicate their preferred minimum proportion of taxonomy-aligned investments as defined in Article 2(1). However, during the transitional period, products will not be able to commit to a “minimum threshold” of such investments as of October 2022, when the amended delegated acts should become effective.The transitional period also means that the practical applicability of the EU Ecolabel for retail financial products will start only on 1 January 2023, given that its portfolio ‘greenness’ calculation formula is dependent on disclosures of Turnover and CapEx aligned with the taxonomy.  

Financial undertakings' taxonomy disclosures cannot take effect at the same time as disclosures of investee-companies. Following the transitional period in 2022, financial undertakings should be provided in 2023 with a one year, best-effort period to integrate taxonomy alignment information from investee companies. Such sequencing of taxonomy alignment reporting would allow financial undertakings to collect taxonomy alignment information from companies throughout 2023, when this data becomes available. Taxonomy eligibility disclosure requirements during the transitional period could mislead investors. The requirement for asset managers to disclose the proportion of eligible activities in 2022 may mislead market participants in their interpretation of this indicator. Investors might interpret this percentage as the proportion of taxonomy aligned activities that meet its technical screening criteria, whereas it only informs about the proportion of economic activities covered by the taxonomy, which do not necessarily meet the criteria. For example, a fund´s portfolio may have 70 per cent of taxonomy eligible activities, but only 5 per cent taxonomy aligned. We recommend that the Commission reconsiders the utility of disclosing this indicator for financial undertakings during the transitional period. 

Taxonomy alignment methodologies at entity and product levels need to be consistent. The treatment of non-assessable assets (cash, sovereign bonds, derivatives) in the taxonomy-related amendments to the draft SFDR RTS should be fully aligned with the final text of this underlying delegated act. Currently, EFAMA sees several inconsistencies between the two Level 2 measures. For example, the latter recommended the inclusion of sovereign bonds in the denominator, whereas this delegated act recommends their exclusion. 

Voluntary taxonomy disclosures by non-NFRD firms are needed sooner than in 2025. Limiting eligible firms for taxonomy alignment to those subject to NFRD would incentivise sustainable investments in European large cap companies, to the detriment of green SMEs and non-EU companies. If the delegated act allows voluntary disclosures of non-NFRD companies only as of 2025, two years after the disclosures of NFRD entities, it could result in a jurisdictional and company size bias in sustainable investment flows. EFAMA recommends accepting audited, voluntary taxonomy disclosures by non-NFRD/CSRD entities at the same time as disclosures by NFRD companies. 

Screening of all assets under management against the taxonomy at the entity and SFDR Article 6 product-level should be optional. A mandatory requirement for asset managers subject to NFRD/CSRD to screen all assets under management against the taxonomy would be disproportionate, as taxonomy aligned activities are expected to show higher concentration in Article 8 and 9 SFDR products. We recommend that asset managers be required to provide taxonomy alignment disclosures for Article 8 and 9 funds and have the possibility to conduct taxonomy screening of Article 6 SFDR fund portfolios on an optional basis.