Leading global accountancy body ACCA is calling for the simplification of European Union sustainable financial reporting rules.

ACCA (the Association of Chartered Certified Accountants) has told the European Commission (EC) that the nature of its sustainable finance disclosure rules is hindering the sustainability practices of some businesses.

To achieve effective implementation of disclosures of sustainable financial reporting rules and to attract private funding backing the transition to a more sustainable future, ACCA says that it is imperative that the EC simplifies the requirements and reduces the reporting burden for companies.

In a response to the EC on the revision of the Sustainable Finance Disclosure Regulation (SFDR), ACCA encourages the EC to consider a transition-focussed approach creating more flexibility and phasing in implementation.

ACCA does back the objectives of the SFDR. It sets a high standard for financial market participants by:

• promoting increased transparency for investors on the sustainability practices and the ESG characteristics of investments;
• encouraging greater accountability for asset managers; and
• further emphasising ESG integration in investment decision-making processes.

Vikas Aggarwal, Regional Head of Public Affairs, EEMA, ACCA, said: ‘At present, the SFDR requirements are too granular and complex. These constraints will prevent the SFDR’s aims and EC’s objectives being fully achieved.’

ACCA calls on the EC to address key issues in the regulation including:

• The requirement to gather large volumes of data which put a strain on asset managers’ budgets and leads to financial products being deprioritised by investors;
• Lack of enforcement which has led to concerns that some assets manager may not fully comply with the regulations, ACCA wants to see enforcement mechanisms introduced;
• SFDR’s applicability to large assets managers mean that smaller firm with limited resources to comply with the requirements are locked out;
• The focus of the regulation is unbalanced with greater emphasis placed on social factors. More guidance on how to assess and address social impacts in investment strategies and consider how social elements can be further incorporated;
• The ‘do no significant harm’ test is not clear enough. Regulations need to clarify that financial performance in the short term should not be prioritised over the non-financial performance and risks to society in the long-term.

ACCA also wants the EC to take a global lead on this crucial issue. Joe Fitzsimons, Regional Lead Policy and Insights, EEMA & UK, ACCA, said: ‘EC was a first mover in establishing SFDR to combat greenwashing and is now looking to address undue burdens by simplifying and streamlining the requirements. We encourage the EC to use this first mover advantage and revisions process as an opportunity to influence wider global regulations.’

Read the full submission here