Investors seek clearer definition of what ESG means in EU

Confusion has continued since Sustainable Finance Disclosure Regulation’s implementation in March.
Image: James Jordan, Bloomberg

Europe needs to clarify what constitutes a sustainable investment product, as current rules aren’t clear, according to a group of investors, academics and consumers convened to advise on regulations.

Whether a financial product can be called “sustainable” or “ESG” if it isn’t categorized as green under Europe’s new disclosure regulation is still up for debate, the Securities and Markets Stakeholders Group said in a report to the European Securities and Markets Authority published on Tuesday.

The Sustainable Finance Disclosure Regulation was designed to eliminate inflated claims of investments’ potential environmental, social and governance, or ESG, benefits. But confusion has continued since its implementation in March. Billions of dollars are stake, as demand for sustainable products soars.

The stakeholders group said it’s “important” from an investor protection perspective that there’s no confusion over what constitutes a sustainable product. In its report to ESMA, the group also said the interaction between SFDR and rules governing the sale of financial instruments, known as MiFID II, “is currently not clear at all.”

The plea comes as Europe considers a new strategy for encouraging retail investing, including addressing inconsistencies across regulations.

© 2022 Bloomberg L.P.

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