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Dutch regulator calls for SFDR reform in consultation paper

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Published: 13 November 2023

AFM wants to see Article 8 and 9 classifications removed and new sustainability labels introduced, reflecting discontent within the European financial sector over the current EU sustainability disclosure regime.

Despite being implemented more than two years ago, the SFDR taxonomy remains a work in progress | Guillaume Périgois on Unsplash

paper published by Dutch financial markets regulator AFM in early November calls for reform of the EU’s Sustainable Finance Disclosure Regulation (SFDR), notably by removing the current Article 8 and 9  sustainability disclosure classifications and  introducing easier-to-understand sustainable product labels.

The regulator’s comments were made in response to the European Commission’s latest consultations on the SFDR, whose taxonomy remains a work in progress, despite having been implemented more than two years ago. That has created uncertainty over how to develop sustainable financial products to meet its demands.

After months of criticism, the EC issued a clarification in April 2023 on how sustainable investment products should be categorised, and it is now polling opinion on how the framework could be overhauled via a questionnaire. AFMs’ proposals are likely to be reinforced by the publication of similar suggestions by other stakeholders active in the European financial markets over coming weeks, as the December 15 deadline for responses to the three-month consultation approaches.

AFM said its proposed changes should ensure that the legislative framework is better suited to supporting investors – particularly retail investors – in their sustainable investment decision-making. 

“The proposed changes concern not only the disclosures but also a proposal for minimum quality requirements for certain categories of sustainable products, in line with consumer expectations. This can, in turn, help investment professionals to provide meaningful sustainability-related investment advice to their clients,” AFM said.


Many industry stakeholders agree that the current Article 8 and 9 classifications are confusing for investors and are also being touted as evidence of green credentials even though many products or funds in the classification are not primarily focused on making positive environmental or social impact. AFM says the Artlcle 8 and 9 tags should be removed “to tackle their current misuse as proxy labels”. 

The EC acknowledged this issue in the consultation document, noting persistent concerns that “the current market use of the SFDR as a labelling scheme might lead to risks of greenwashing”. It said the terms of the regulation as it currently exists were not conceived for that purpose, but rather to create a more harmonised approach across the EU to disclosure relating to the green credentials of financial products. “The intention behind them was to encompass as wide a range of products as possible, so that any sustainability claims had to be substantiated,” the EC said.

AFM’s proposed solution is to introduce a labelling scheme that investors can more readily understand, suggesting “transition”, “sustainable” and “sustainable impact” labels. These, it said, would “ensure alignment with investor expectations and objectives as well as the actual sustainability profiles of investment products”.

“Transition” products would be those that invest in companies that are not yet sustainable, but plan to become so, and which aim to create impact through active management of the investments. “Sustainable” products would not necessarily make measurable, active impact through investments but would cater to investors that only want to invest in sustainable assets.

 “Sustainable impact” products would be those seeking to make direct and measurable impact through investments, by financing underserved markets or companies that have a tangible positive impact on sustainability factors. “This category would be well suited to investors who favour positive sustainability impact over return, due to the scarcity of suitable investments and high risks associated with this profile. In current market practice, only a limited number of products would qualify for this category,” the regulator said.

Level playing field

AFM also addresses another bugbear for those developing financial products with sustainability features, which is that, while they make disclosures on impact, that does not apply to other products. This effectively means investors cannot accurately gauge the negative impacts of products without sustainable features and how they compare in that regard to sustainable products. 

AFM favours a disclosure regime that supports a level playing field for all financial products with or without sustainable features. “This would mean that all financial products should make disclosures on a limited number of sustainability indicators in order for investors to assess the most important negative impact,” the regulator said.

The commission plans to report back on its plans based on input from the consultations in the first half of 2024.

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