Are Sustainable Financial Products Too Complex to Label?
Insights Bernd Geier · January 25, 2024
Is it the responsibility of the financial industry to develop sustainability labels for financial products?
There is a great desire for sustainability labels in the financial market. The SFDR (Regulation (EU) 2019/2088) does not provide labeling requirements It addresses information asymmetries through disclosure requirements differentiated by product category.
Sustainability preferences are complex and develop dynamically. They can only be adequately represented by simple labels to a limited extent. The basic idea of the SFDR is not to prescribe labels, but to align the disclosure requirements for financial products with ESG preferences and thus the information requirements of their potential investors, is underpinned by economic theory.
Private market mechanisms and intermediaries should now make use of the SFDR disclosures and contribute by establishing their own labels to the reduction of information processing costs.
Rimon is an international law firm widely known as being at the vanguard of legal tech and innovation with 46 offices on five continents. In Germany, it operates as Rimon Falkenfort. Rimon has been repeatedly recognized by the Financial Times as one of North America’s most innovative law firms.