Earlier this year, the European Supervisory Authorities (ESAs) 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).
At the time of issuing the draft RTS the ESAs noted that while financial market participants and financial advisers were 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 would be delayed to a later date. At the time the ESAs proposed in the draft RTS that the application date should be 1 January 2022.
The ESAs are also preparing draft RTS 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. The deadline for the submission of the standards was 1 June 2021 and certain provisions are due to apply from 1 January 2022.
On 9 July 2021, the European Commission issued a letter informing the European Parliament that it planned to bundle all of the above draft RTS into a single delegated act and defer the dates of application of 1 January 2022 by six months to 1 July 2022.
This further delay will have a number of ramifications for firms. These include:
- There will be some relief among firms at the delay given that implementation of the SFDR RTS requirements will be highly complex and could take firms significant time get to grips with, in particular where there is a lack of ESG data.
- Firms will need to continue progressing their SFDR implementation projects based on limited detail in the absence of final RTS, which may pose some practical challenges.
- Firms are likely to continue to take a high-level approach to their SFDR disclosures for the foreseeable future, which may be less welcomed by some institutional investors.
- Many smaller firms may continue explaining the reasons for non-compliance with the assessment of principal adverse impacts (PAIs) of investment decisions on sustainability factors, rather than opting to comply.
- Larger firms that became subject to the PAI obligation from 30 June 2021 will likely continue to take a high level approach to the disclosure of PAIs and delay reporting against sustainability indicators, though this may necessitate a degree of regulatory forbearance from Member State national competent authorities.