It is not always so easy with regulation. What was well-intentioned on the part of politicians can sometimes lead to a certain amount of frowning on the part of investors in practice, as the still relatively new regulations do not always have the necessary degree of maturity that investors would like to see. A good example is the EU Disclosure Regulation. The basic idea behind the Disclosure Regulation is easy to explain: in principle, it is about creating incentives to channel as much capital as possible into areas that enable or promote a sustainable economy. The Disclosure Regulation helps to achieve transparency about the ESG characteristics of portfolios. This achieves two objectives. On the one hand, it is about preventing so-called “greenwashing”. On the other hand, it is also about showing investors various investment options in as transparent a manner as possible and supporting their decision-making. This sounds sensible and plausible, but the pitfalls lie in the details.
The EU Disclosure Regulation
There are currently three different categories of investment products under the Disclosure Regulation. The least ambitious category comprises so-called Article 6 financial products. Here, the extent to which sustainability aspects are part of the investment decisions must be disclosed; it must also be shown to what extent sustainability risks exist in the portfolio that could have a negative impact on the performance of the portfolio. However, this transparency under Article 6 does not require that the assets held in the portfolios themselves take sustainability aspects into account to a high degree; it is really only a matter of creating transparency with regard to the content, but not a specific form of content. The situation is different for the other two categories, Article 8 and Article 9 funds. Here, the requirement is not only to create a high level of transparency about the securities held in the portfolio and their ESG characteristics, but also to formulate increased requirements for the content and structure of the portfolios.
