The horizontal approach to the Sustainable Finance Disclosure Regulation (SFDR) is “presenting some challenges” for pension schemes, according to Pensions Europe.

The comments were made in the association’s position paper on the SFDR Level 1 review, particularly focusing on the European Supervisory Authority’s (ESAs) Joint Opinion on the SFDR.

PensionsEurope believes the SFDR framework was mainly designed for retail investment funds, while pension funds, it said, are different in at least three significant ways.

“First, in many or most cases members are automatically and mandatorily enrolled and have no investment choice. Second, the portfolio of pension funds is far more complex than most retail investment products and typically covers a broad range of listed and unlisted assets. Third, the product-level and entity-level differentiation is, in many cases, irrelevant as the pension fund (entity) only offers a single scheme (product),” PensonsEurope said.

The association believes the SFDR framework has “led to significant implementation challenges for pension funds” and any review of the regulation should “align with President von der Leyen’s goal to reduce reporting requirements by 25 per cent”.

However, it argued that the ESAs’ current proposal would “substantially increase” the regulatory burden for IORPs.

In its wide-ranging paper, PensionsEurope reiterated its call for a dedicated sub-sectoral regulatory technical standard (RTS) for IORPs to establish adequate disclosure requirements tailored to their specificities.

“Given the diverse IORP landscape across the EU, this RTS should provide ample flexibility for member states and national competent authorities (NCAs) to implement rules that reflect their specific national contexts,” the paper stated.

Furthermore, the association highlighted the costs financial market participants, including IORPs, have incurred to meet SFDR requirements.

It, therefore, believes that the proposal to introduce product categories may inadvertently increase regulatory burdens for IORPs, even for those outside of these categories, as they could be placed under a ‘non-category’, leading to further reporting requirements and complexity.

“However, if the framework does move toward categorisation, we strongly support introducing a transition category. We also advocate for the recognition of engagement and exclusion strategies in the categorisation system and for a streamlined list of mandatory principal adverse impacts (PAIs).

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