FIA EPTA members welcome the opportunity to respond to the ESA’s Consultation Paper on the Review of SFDR Delegated Regulation regarding PAI and financial product disclosures.
FIA EPTA members believe that exchange-traded derivatives (ETDs) are a key component of mature secondary markets. The recent growth in demand for listed ESG derivatives demonstrates that these products are a core component of sustainable investment strategies, especially since the availability of liquid and transparent derivatives significantly reduces funding and financing costs for equity and bond issuers in primary markets.
The proposed approach by the ESAs would unduly disincentivise the use of derivatives in the affected financial products since any exposures to derivatives could not be counted toward the Taxonomy-alignment ratio. This would make it more difficult for end-users to use ETDs for managing their financial risks and in the process undermine the goal of having safe, liquid, and efficient markets that can support the green transition.
Portfolio managers have a critical role in the economic transition. Their core fiduciary duty is to achieve appropriate returns for their end-beneficiaries. Effective risk management is key for asset managers to deliver on these objectives. ETDs also have a critical information function in financial markets in providing transparency on asset pricing and risk. An effective price formation process inherently brings together market participants with different investment horizons and risk-return expectations.
