Europe’s Regulators Issue Final Draft of SFDR Disclosure Rules
The joint committee of Europe’s three primary financial regulatory agencies, the European Supervisory Authorities (ESAs), announced that it has delivered to the European Commission a report including the draft Regulatory Technical Standards (RTS), on the content, methodologies and presentation of disclosures under the EU Regulation on the upcoming EU Sustainable Finance Disclosure Regulation (EU SFDR).
The EU SFDR forms part of the EU’s Action Plan on financing sustainable growth. The regulation establishes harmonised rules for financial market participants including investors and advisers on transparency regarding the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability‐related information with respect to financial products. The new regulations will require financial market participants and asset owners to provide disclosures including the manner in which sustainability risks are integrated into their investment decisions, and assessments of the likely impacts of sustainability risks on the returns of financial products.
According to the ESAs – The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA) – the new standards are aimed at strengthening protection for investors by improving ESG disclosures to on the principal adverse impacts of investment decisions and on the sustainability features of financial products.
Among the new rules are requirements for financial market participants to disclose on their websites the principal adverse impacts that investment decisions have on sustainability factors, based on a list of indicators encompassing climate and environment, as well as social and employee matters, respect for human rights, anti-corruption and anti-bribery aspects. For companies with fewer than 500 employees, the entity-level principal adverse impact reporting applies on a comply-or-explain basis.
The RTS also includes rules relating to the sustainability features of financial products, including requirements to disclose how a new product with sustainability objectives will meet its goals, along with periodic reports on the extent to which the objectives were met, as well as ‘do not significantly harm’ disclosures, detailing how the investments avoid significantly harming sustainable investment objectives.
Steven Maijoor, Chair of the ESAs Joint Committee, said:
“The significant set of rules issued today provide a strong basis to improve ESG reporting and combat greenwashing. They strike a careful balance between achieving common disclosures across the range of financial products covered by the SFDR and recognising that they will be included in documents that are very diverse in length and complexity. The ESAs have listened to the consultation feedback from stakeholders and have adjusted the proposed disclosures.”
The SFDR regulations go into effect on March 10, although the application of the RTS will be delayed to a later date. According to the ESAs, the European Commission is expected to endorse the RTS within 3 months, and the ESAs have proposed that the application date of the RTS should be January 1, 2022.