Impact Europe and GSG were among signatories to an open letter calling on the EU to put impact investing centre stage when reappraising its green investment regulatory framework.
A group of European impact investing organisations has written to the European Commission urging it to take steps to accelerate the growth of the European impact investment market and stressing the need to promote a just transition in any overhaul of the EU Sustainable Finance Disclosure Regulation (SFDR) and related measures.
The stakeholder group includes Impact Europe (the newly renamed EVPA), the Global Steering Group for Impact Investment (GSG), the GSG’s National Advisory Boards, the UK’s Impact Investing Institute, and the Global Alliance for Impact Lawyers among others.
In the joint letter, they called for measures to reduce the scope for greenwashing in the European investment market by ensuring that reporting for financial products is more transparent. They also sought the introduction of financial product labelling schemes that would allow retail investors to more easily differentiate between investments that only met broad sustainability requirements and those that intentionally seek positive social and environmental impact.
Following long-running criticism of the regime, the EC recently held a fresh three-month consultation on the SFDR, which closed on 15 December. There had been concern that the current regulations created uncertainty over how sustainable products should be developed to meet their demands, and that they need augmenting to facilitate the impact investment required to fill the huge shortfall in funding required to meet the UN Sustainable Development Goals. The commission is scheduled to report on potential revisions to its regulatory framework in the first half of 2024.
“A strengthened SFDR, recognising the value of positive social and environmental investors’ contribution, is crucial to unlock the full potential of impact investing in Europe,” Roberta Bosurgi, CEO of Impact Europe said. She called for constructive collaboration with the EC on advancing shared goals.
The letter’s authors called for a simplified and consistent transparency regime for all financial products under the SFDR to make them more accurate, comparable and easy to access. They want mandatory disclosure requirements to cover both environmental and social factors, and measures that allow clear reporting on the nature of underlying investments.
Calls for new labelling schemes for financial products have also been intensifying over recent months to allow investors to assess their green credentials more accurately and reduce the scope for greenwashing.
Under the EU taxonomy, Article 8 financial products or funds promote social and or environmental “characteristics”, while those meeting the requirement of the most rigorous Article 9 classification must have a sustainable objective. However, neither classification, despite being among the most visible indicators of a fund’s green credentials, signifies that underlying investments are necessarily making a measurable positive environmental or social impact.
The letter’s authors called for the introduction of additional labelling schemes to enhance communication and trust, recognising the need to democratise access to impact investment, especially for retail investors. They noted that a 2022 EVPA/GSG study showed that individual retail investors contributed a similar amount of capital to the European impact investment market (26%), as financial institutions (28%) and institutional investors (23%).
Clear criteria for underlying investment strategies would prevent greenwashing and ensure the authenticity of labelled sustainable financial products, the authors said. To that end, they called for the creation of a distinct impact category and label to distinguish between sustainable activities and those that intentionally seek positive social or environmental impact.
The letter follows on from comment during the consultation period from other stakeholders, including the Dutch financial markets regulator AFM, which published a paper in November, calling for the removal of Article 8 and 9 sustainability disclosure classifications, as well as the introduction of easier-to-understand sustainable product labels.
The UK’s recently introduced “sustainability impact” label for investments was highlighted in the letter as a good example of this type of labelling. In an article for Impact Investor, Kieron Boyle, CEO of the Impact Investing Institute, called the publication of the UK’s Sustainability Disclosure Requirements (SDR) in November – which included the UK’s first regulated impact investing label, as an “exciting, industry-defining moment”.