One such development was the recent confirmation hearing conducted on Maria Luis Albuquerque, a commissioner-designate for financial services and the savings and investment union. During her hearing, she proposed some new measures to strengthen the sustainable finance framework of the EU. Thus, due to such proposed new measures, such risks associated with greenwashing will be mitigated for the EU. Alvarez is said to have quoted measures included clear green and transition labels for sustainable investment products along with easing reporting requirements for smaller market participants.
Albuquerque argued that, in and of itself, the extant SFDR is not sufficient to contain greenwashing since its classificatory system—namely, the distinction between Article 8 and Article 9 funds—is commonly misused. As fund classifications have been intended to help describe the environmental or social nature of investment funds, the classifications have been applied as informal, de facto sustainability labels. Article 8 funds promote environmental or social features, whereas Article 9 funds pursue sustainable investments. According to Albuquerque, placing these categories as de facto quality labels to sustainability jeopardizes transparency. “The framework is being misused, as a pseudo-labelling regime, and this does create greenwashing risks,” she said, revealing her concerns over the “green products” that start to appear without their sustainability having been properly verified.
Albuquerque recommended the introduction of a formal labelling system. She proposed that using specific labels for green investments and transition investments would help describe the sustainability status of such a wide range of financial products. Transition labels would thus help companies that are already striving to become more sustainable but have not yet qualified in full. “That is very important, she said, “because that’s actually where the bulk of our productive sector is.” A system like this would demand minimum criteria easily applicable and understandable. Sustainability claims must be legitimate from the investment product.
Asides from her advocacy to label, Albuquerque said, the sustainable finance framework needed to be made accessible as well as proportionate to small companies. She promised to simplify reporting requirements and cut regulatory burdens, which she believes impede smaller market participants. She argued that simplifying the processes would eliminate the existing inconsistencies and overlaps in the regulations, making it less burdensome for smaller entities to comply. “There are probably reporting requirements which can be streamlined,” she said, promising to work on improving usability and proportionality.
In line with this, the European Commission has already promised for a more extensive review procedure of the SFDR last year 2023 for being able to draft clearer, and much more harmonized guidelines on transparency, integration into risk. So far, Albuquerque made efforts by ensuring that her plan can make more credible and more inclusive developments within the area of sustainable finance. She would see her plan’s confirmation as soon as November 25-28 is set by the European Parliament during its plenary vote so she, in consequence, shall have confirmed with the college of the whole college of Commissioners.