New technical standards for ESG disclosures under the Sustainable Finance Disclosure Regulation
On 1 January 2023, the regulatory technical standards (RTS) entered into effect in the form of the SFDR Level 2 requirements, supplementing the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation. Together with the SFDR and the Taxonomy Regulation, the RTS sets out comprehensive and in-depth rules for sustainability related disclosures for financial products operating or distributed in the European Union.
What is new?
- Financial market participants who consider principal adverse impacts (i.e. impacts of investment decisions and advice that result in negative effects on sustainability factors) when making investment decisions must use a mandatory template when issuing statements in accordance with the RTS.
- Mandatory templates in relation to pre-contractual and periodic disclosures for article 8 and article 9 financial products have been introduced.
- Additional regulatory requirements for website disclosures issued by article 8 and article 9 financial products.
- The new regulation took effect on 1 January 2023 and requires financial market participants who consider principal adverse impacts to publish a statement by 30 June each year (the first statement to be published by 30 June 2023).
The SFDR Level 2 requirements took effect in the beginning of the year and sets out detailed disclosure requirements under the SFDR and the Taxonomy Regulation, requiring financial market participants to report the main adverse effects of their investment decisions and the sustainability characteristics of their financial products in accordance with the RTS. While the RTS mainly focuses on the article 8 and article 9 financial products, it also provides clarification on the interpretation of certain aspects of the SFDR for all financial products.
As of 1 January 2023, financial market participants are required to issue their sustainability related disclosures in an easily accessible, simple, concise and comprehensible manner which is not misleading to the end investor. Consequently, article 8 and article 9 financial products, i.e. products that integrate sustainability into the investment process, must provide more detailed and comprehensive information in their regular disclosure documents compared to previous years.
Principal adverse impacts
All financial market participants must clearly state their stance on principal adverse impacts on a comply or explain basis by publishing their principal adverse impact statement on their website. For financial market participants who do consider principal adverse impacts, a statement shall be published on their website under a section specifically titled “Statement on principal adverse impacts of investment decisions on sustainability factors”. The principal adverse impacts statements made by these financial market participants shall be published by 30 June each year in respect of a reference period corresponding to the previous calendar year. However, financial market participants who do not consider principal adverse impacts shall publish their statement on a separate section of their website specifically titled “No consideration of adverse impacts of investment decisions on sustainability factors”.
All financial market participants are required to comply with the new website disclosure requirements of the RTS for article 8 and article 9 products as of 1 January 2023. The RTS prescribes how and where website disclosures should be presented and provides mandatory headings for the affected financial products. Furthermore, the RTS includes the type of information to be disclosed under each heading.
Pre-contractual and periodic disclosures
The mandatory templates for pre-contractual and periodic disclosures have to be populated as of 1 January 2023, implying e.g. that the new pre-contractual disclosure template shall be attached to all pre-contractual documents under the SFDR. For periodic disclosures, the mandatory template shall be completed for any financial report produced for this year, irrespective of the financial period that the report covers.
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