Genesta’s Contribution to the EU Commission’s SFDR Consultation
Genesta has embraced the European Union’s initiative to establish a transparent framework within the financial sector. While acknowledging the merits of the current framework, we also recognize its limitations and understand that new measures may be necessary to address evolving challenges and emerging opportunities in sustainable investments.
Genesta has therefore submitted its response to the latest EU’s commissions “Targeted consultation on the implementation of the Sustainable Finance Disclosures Regulation (SFDR)”. Overall, we advocate for more inclusion of transition strategies, redefining sustainability categories, and mandatory third-party verification—paving the way for a transparent and impactful future in sustainable finance.
Here is an overview of some of our main findings:
Lack of Inclusion of Transition Strategies
- It is crucial for the real estate market to shift towards a more sustainable and energy-efficient building portfolio. However, existing transition strategies face a negative perception in the SFDR. Examples of this are the definition of 'energy inefficient real estate assets' in the PAI and the clarification that sustainable investments need to be sustainable at the time of acquisition. One could argue that financial resources ought to be directed to address genuine needs in the real estate market, specifically facilitating the transition of brown buildings to green, as opposed to incentivizing investors to acquire already sustainable properties.
- Genesta follows a brown-to-green strategy and transitions energy-inefficient buildings to energy-efficient buildings. In this case, the share of energy-inefficient buildings does not indicate an adverse impact and neglects the positive impact of the brown-to-green strategy, and therefore in the end misinforms the public and end investors. We believe that this indicator could be useful if the definition of energy inefficient is revisited.
Sustainability Categories
- Genesta does not recommend establishing a categorization system around the existing Articles 8 and 9, as we do not consider the current concepts fit for purpose. If it were to be used, it is important to address the ambiguity surrounding the use of Articles 8 and 9 and its concepts. Clear definitions and minimum thresholds should be established to avoid confusion. Moreover, it needs to be clarified how brown-to-green strategies will be included. Genesta considers brown-to-green strategies as a crucial element in the transition to a sustainable economy, which is not currently reflected in the current Articles 8 and 9.
- Exclusion strategies should not be considered as a category of sustainability products. Exclusions can be used as a minimum requirement not to do any harm, but are challenging to use from the perspective of making a sustainable impact. We would suggest including exclusion based on safeguarding requirements across all products, in a similar way as PAI and ESG risks are currently included. Avoiding ESG risks and negative sustainability impacts should be a minimum. In this way, concepts of the current systems can still be used.
Assurance
- Genesta is in favour of the third-party verification of categories becoming mandatory (i.e. assurance engagements to verify the alignment of candidate products with a sustainability product category and assurance engagements to monitor ongoing compliance with the product category criteria).
- Genesta believes that third-party verification is essential to limit greenwashing and ensure claims on sustainability categories are verified. Therefore, we strongly support third-party assurance over self-declaration.
This is a significant opportunity to transform the sustainable finance landscape in the EU. We are closely monitoring future developments with anticipation and commitment to positive change.
