The SFDR and its regulatory technical standards (RTS) have been in the spotlight in recent weeks, with three notable statements and briefings having been published at European level since late May.


EC response to ESAs queries


On 25 May, the European Commission (EC) submitted its answers to the queries that were submitted by the European Supervisory Authorities (ESAs) for clarification earlier in the same month. Notably, the EC clarified a number of points of concern including the following:

·      Financial products already existing on 10 March 2021 (application date of SFDR level 1) must comply with SFDR’s disclosure requirements. Products no longer made available to end-investors must still comply with website and periodic report disclosure requirements.

·      Financial Market Participants who are not required by SFDR to consider Principal Adverse Impacts (PAI) at entity level may still integrate PAI considerations on product-level.

·      Article 8 products must include in their pre-contractual disclosures information on the environmental objectives the product contributes to, regardless of whether the product commits to invest in sustainable economic activities as defined by the Taxonomy Regulation Delegated Acts. The EC adds however that these disclosures must be based on “reliable data”. Otherwise, FMPs will need to indicate a null percentage of taxonomy-alignment.


ESMA Supervisory Briefing on SFDR disclosures


On 31 May, ESMA published a Supervisory Briefing to ensure convergence across the European Union (EU) in the supervision of investment funds with sustainability features by National Competent Authorities.


The guidance provided by ESMA covers:

·      the verification of investment funds documentation and marketing material;

·      the integration of sustainability risks by fund managers;

·      clarification on possibilities for regulatory intervention in the event of breaches.


ESAs clarifications on draft RTS


On 6 June, the ESAs published a statement providing clarifications on the draft RTS (as opposed to the Delegated Regulation on SFDR RTS adopted by the EC in April 2022). The statement covers the following elements:


·      Use of sustainability indicators and Principal adverse impact (PAI) disclosures;

·      Further guidance on PAI calculation methodology

·      Investment instrument scope for PAI disclosures and look-through approach

·      Definition of direct and indirect investments;

·      Further guidance on pre-contractual and periodic financial product disclosures;

·      Taxonomy-related financial product disclosures;

·      “Do not significantly harm” (DNSH) disclosures; and

·      Disclosures for products with investment options.


The SFDR RTS are currently under scrutiny by the European Parliament and Council of the EU and the expectation is still that they will apply from 1 January 2023.


The ABBL and its members will examine these latest developments within the relevant working groups and ensure those are properly reflected in the upcoming updated version of its SFDR implementation guide.


Other relevant updates on the EU Taxonomy

Members of Economic and Monetary Affairs Committee (ECON) and the Environment, Public Health and Food Safety Committee (ENVI) Committee have objected to the Commission’s proposal for the inclusion of nuclear and gas in the list of environmentally sustainable economic activities covered by the EU Taxonomy, with 76 votes in favour, to 62 against and 4 abstentions. The resolution will now be voted in plenary. The European Parliament and the Council have until 11 July 2022 to decide whether to veto the Commission’s proposal.


Climate-related risks and European Sustainability Reporting Standards


The ABBL is currently preparing contributions to several ongoing consultations with regards to the management of climate-related risks and the definition of the so-called European Sustainability Reporting Standards (ESRS), which are key for structuring the future landscape of non-financial reporting and the role of climate-related and environmental risks in the prudential framework. 


Should members be interested in joining the discussions and contributing to the drafting of positions, or simply wish to have more information about the ongoing ABBL work in the field of sustainable finance, please contact Julien Froumouth or Thomas Collin.