FIA EPTA members believe the European Union has taken a leadership role in creating a global baseline for regulatory initiatives to support the transition. In particular, the EU has developed a regulatory framework to enhance transparency and harmonisation in sustainable investment based on an agreed green taxonomy. SFDR is an important part of the EU’s promise of promoting sustainable investing.
Building a full capital markets ecosystem of new taxonomy-aligned investment products will be of pivotal importance. However, FIA EPTA members believe that the EU’s regulatory framework disadvantages the secondary markets and especially exchange-traded derivatives (ETDs) as they are not recognised for their important function in the transition. The role of ETDs are not part of this consultation by the EC, nonetheless, FIA EPTA members believe this should be the case and would urge the EC to do so.
Currently, SFDR would unduly disincentivise the use of ETDs in the affected financial products since any exposures to ETDs 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.
ETDs are versatile financial instruments that can serve various purposes, including risk management and asset allocation. A mature and healthy secondary markets ecosystem of ‘green’ ETDs, i.e., listed futures and options, needs to be developed alongside the markets for sustainable shares and bonds.
