BAI criticizes EU proposal on ESG disclosure for financial products

Bundesverband Alternative Investments eV (BAI), the central lobby of the alternative investments industry in Germany, criticizes the proposals for sustainability-related disclosure requirements in the financial services sector jointly submitted for consultation by the European supervisory authorities ESMA, EBA, and EIOPA.

The draft of the so-called technical regulatory standards (RTS) is based on the EU regulation on sustainability-related disclosure requirements in the financial services sector (Disclosure Regulation), which is part of the package of measures of the Sustainable Finance Initiative of the European Union. 

The regulatory standards contain extensive and detailed specifications, on the one hand, for the content, methods and presentation of product-related disclosure (pre-contractual, on the homepage and in periodic reports), and on the other hand, for reporting on potential adverse effects on defined sustainability indicators.

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The regulators are overshooting the mark

BAI Managing Director Frank Dornseifer is extremely critical of the proposals of the EU supervisory authorities: “Increasingly large parts of the financial sector have meanwhile taken up the cause of sustainable investment. This also applies to the alternative investment industry. With their proposals, ESMA, EBA and EIOPA are now clearly overshooting the mark; and the push threatens to significantly slow down this dynamic instead of supporting it. Such comprehensive and detailed specifications are neither required by the underlying disclosure regulation nor do they correspond to the actual risk-related information needs of investors with regard to ESG factors (environment, social affairs, governance).”

Companies are overburdened

They overwhelm many affected financial companies that have developed their own methods or standards or have very limited access to this information. As long as there are no corresponding reporting obligations at company or asset level, intermediaries cannot be obliged to collect such information themselves and make it available to investors. In the view of BAI, the Disclosure Regulation is already sufficiently specific and concrete and does not require such detailing and mandatory standardization as is now being proposed by the European supervisory authorities.

There is a lack of coordination between the initiatives

There is also a lack of coordination with other political and industry initiatives aimed at improving the comprehensibility and comparability of ESG-related reports and disclosures. 

In this context, BAI emphasizes in particular the ESG disclosure standards for investment products of the CFA Institute, which specifically address relevant investor requirements and take into account the idea of materiality.

This results in a disproportionate effort

Frank Dornseifer further commented on this as follows: “We lack important considerations and approaches in the draft, such as the principles of proportionality and materiality. Small and/or middle financial enterprises, which are excluded in principle from the range of application, are only given the opt-in possibility only if they submit themselves in its entirety to the very extensive and complex disclosure requirements. Anyone who chooses to opt-in on a voluntary basis or in order to comply with investor wishes must therefore make a disproportionate effort. Here we need a phased approach, also to avoid distortions of competition. The same applies to materiality: it makes no sense for financial companies to have to comment on a catalog of 32 sustainability indicators, even if they are not relevant. However, the Disclosure Regulation, on which these standards are based, requires. Consideration of such materiality considerations. These examples alone show that the need for improvement is considerable.”

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