On 4 February 2021, the European Supervisory Authorities published a final report containing draft regulatory technical standards (RTS) on the content, methodologies and presentation of sustainability-related disclosures under the empowerments set out in Articles 2a, 4(6) and (7), 8(3), 9(5) and 10(2) and 11(4) of the Sustainable Finance Disclosure Regulation (SFDR).
The draft RTS relate to several disclosure obligations under the SFDR regarding the publication of:
- The details of the presentation and content of the information in relation to the principle of ‘do not significantly harm’ as set out in Article 2(17) of the SFDR consistent with the content, methodologies, and presentation of indicators in relation to adverse impacts referred to in Article 4(6) and (7) SFDR (Article 2a SFDR).
- A statement on an entity’s website of describing its due diligence policy in respect of the adverse impact of investment decisions on sustainability factors in relation to climate and other environment-related impacts (Article 4(6) SFDR) and adverse impacts in the field of social and employee matters, respect for human rights, anti-corruption and anti-bribery matters (Article 4(7) SFDR).
- Pre-contractual information on how a product with environmental or social characteristics meet those characteristics and if an index has been designated as a reference benchmark, whether and how that index is consistent with those characteristics (Article 8 SFDR).
- Pre-contractual information to show, where a product has sustainable investment objectives and (a) has a designated index as a reference benchmark, how that index is aligned with the sustainable investment objective and an explanation as to why and how that designated index aligned with the objective differs from a broad market index (Article 9(1) SFDR); or (b) if no index has been designated as a reference benchmark, an explanation on how those objectives are to be attained (Article 9(2) SFDR).
- Information on an entity’s website to describe the environmental or social characteristics of financial products or the sustainable investment and the methodologies used (Article 10 SFDR).
- Information in periodic reports according to sectoral legislation specifying: (a) the extent to which products with environmental and/or social characteristics meet those characteristics; and (b) for products with sustainable investment objectives and products which objective is a reduction in carbon emissions: (i) the overall sustainability-related impact of the product by means of relevant sustainability indicators and (ii) where an index has been designated as a reference benchmark, a comparison between the overall impact of the financial product with the designated index and a broad market index through sustainability indicators (Article 11 SFDR).
The European Commission is expected to endorse the draft RTS within 3 months of their publication.
The ESAs note that while financial market participants and financial advisers are required to apply most of the provisions on sustainability-related disclosures laid down in the SFDR from 10 March 2021, the application of the draft RTS will be delayed to a later date according to a letter from the Commission to the ESAs. The ESAs have proposed in the draft RTS that the application date should be 1 January 2022.
The ESAs plan to issue a public supervisory statement before the application date of the SFDR in order to achieve an effective and consistent application of the SFDR’s requirements and consistent national supervision of the SFDR.
The ESAs will also publish a consultation on taxonomy-related product disclosures under the Taxonomy Regulation which amends the empowerments in Articles 8(4), 9(6) and 11(5) of the SFDR.