Fund Managers Say EU Anti-Greenwash Deadline Unlikely to Be Met

(Bloomberg) --

European asset managers overseeing $22 trillion have little hope of meeting a Jan. 1 deadline to correctly label the sustainability of their investment funds, according to the group representing them.

The European Fund and Asset Management Association (EFAMA) says the industry isn’t being given enough time to adapt to so-called Regulatory Technical Standards, which have yet to be published in full. And in the absence of clear guidance, fund managers may choose to declare that no investment product is sustainable under EU criteria.

“The only proportion that we could disclose is zero,” Dominik Hatiar, regulatory policy adviser for sustainable finance at EFAMA, said in an interview. “That would be the safest approach.” 

Without having seen the new standards, which will provide more granular detail on how to interpret the green taxonomy that underpins European sustainability regulations, asset managers “don’t know what is in the denominator, we don’t know what’s in the nominator, we don’t know how to calculate this number,” Hatiar said.

It’s the latest sign that the Sustainable Finance Disclosure Regulation -- Europe’s landmark anti-greenwashing rulebook for the investment industry -- is continuing to cause anxiety among asset managers. Introduced in March, SFDR is still undergoing adjustments and refinements, such as the Regulatory Technical Standards.

No Leeway

European authorities had intended to provide a complete draft of RTS in late September or early October, but the complexity of the task has caused delays. Questions that have yet to be resolved include how to treat sovereign bonds. And the longer asset managers have to wait for RTS, the less time they’ll have to figure out the taxonomy-aligned sustainability of their funds by the Jan. 1 disclosure deadline.

“For your Jan. 1 disclosures, you need to be making those filings now,” Hatiar said.

At the same time, RTS isn’t due to be formally implemented until July 1, half a year after Europe’s asset managers must declare how environmentally sustainable their funds are. 

European regulators, meanwhile, are signaling they’re unlikely to budge. That’s as focus on greenwashing intensifies and lawmakers look to rein in the booming market for environmental, social and governance investing after years of unfettered growth. 

Hatiar says EFAMA has suggested a workaround that might help the fund management industry cope with the EU’s adoption timeline. The deadline might work, he says, provided managers are allowed to add disclaimers to their product disclosures, to explain how they arrived at a given sustainability ratio.

Ideally, Hatiar says the EU should push the Jan. 1 implementation date for investment product disclosures back to 2024, which is what the European Commission did for financial institution-level reporting requirements.

ESMA’s Timeline

The European Securities and Markets Authority told Bloomberg that it and the EU’s two other financial watchdogs “aim to deliver” the Regulatory Technical Standards to the European Commission “soon.” Once approved by the EU Commission, RTS will still need to be cleared by Europe’s parliament and council.

ESMA said that, in the meantime, asset managers can turn to more general instructions that have been available since last year to help them “make the appropriate product disclosures.”

Hatiar says some in the industry already have taken the step of writing disclaimers and are submitting them to national supervisors. Leaving the issue to local regulators is “unfortunate,” though, he said, because they “may have different expectations.”

Hatiar says the industry feels like it’s been left in limbo. “This is an issue” that European authorities “will have to weigh in on and really say what kind of disclosure they accept in the face of the absence of specifications and guidelines.”

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