As of March 2021 the new Sustainable Finance Disclosure Regulation [SFDR] will come into effect. This regulation is developed to drive sustainable investment. The SFDR will have big impact on asset managers, banks and fund brokers. In the upcoming weeks we will publish a blog series focusing on the SFDR, the obligations, the timelines, the stakeholders and the data requirements to help you get your head around the subject. And to ensure you are well prepared for the new regulation.
In our first blog post on SFDR we gave you a brief introduction to this upcoming regulation and its implications. In this second blogpost we’ll focus on the timelines and the progress of the implementation. What important dates do you need to put in your calendar?
SFDR: What has happened and has been done until now?
In the past years the awareness for sustainable business has grown, leading directly to new initiatives and regulations. We clearly see a shift from a more generic approach to more specific directives and regulations. Amongst them is the SFDR. What steps have been taken so far?
- October 22, 2014: The EU has adopted directive 2014/95 which imposes requirements to (large) companies and organizations to disclose information and report on non-financials such as social and environmental aspects;
- December 12, 2015: Paris Agreement on climate change was signed;
- March 8, 2018: European Commission has released their action plan on Financing Sustainable Growth;
- November 27, 2019: The EU has adopted regulation 2019/2088 (the SFDR regulation) and 2019/2089 (the CO² benchmark regulation);
- April 23, 2020: The ESAs published a joint consultation paper seeking input from the market on the SFDR regulation. The consultation period starts;
- June 18, 2020: The EU has adopted the Taxonomy Regulation 2020/852 which amends (parts of) the SFDR regulation; and
- September 1, 2020: Consultation period has ended.
SFDR: What is currently going on and what to expect?
The SFDR will become effective in March 2021, but includes many more important dates. To help you get your priorities right we made a timeline with all the important dates.
Recently the European Commission announced that the publication of the final RTS is postponed. You’ll read more about this on our blog post explaining the implications of this postponement.
SFDR: The adverse sustainability impacts statement (entity level)
We’ve put all important dates in one comprehensible infographic. The blog post continues below.
- Currently the European Supervisory Authorities [ESAs] are reviewing the input received and they are finalizing the final Regulatory Technical Standards [RTS];
- End of December, 2020: The final RTS will be published. Taking into account the input received during the consultation period;
- March 10, 2021: Effective date of the SFDR regulation. Financial Market Participants [FMPs] and Financial Advisers [FAs] can start considering principal adverse impacts;
- June 30, 2021: Latest date by which FMPs and FAs (with more than 500 employees on group level) must start considering principal adverse impacts. This is the final moment to start data collection;
- December 31, 2021: First reference period ends;
- January 1, 2022: Second reference period starts;
- June 30, 2022: The final date on which FMPs and FAs need to report for the first time, through the adverse sustainability impacts statement, their performance on entity level on various ESG indicators accompanied with textual explanations and commentaries;
- December 31, 2022: Second reference period ends;
- June 30, 2023: The final date by which FMPs and FAs need to report for the second time. In addition from this moment onwards they’ll need to make a comparison between the first and second reference period.
SFDR: Disclosure obligations on product level
In the above timelines we’ve focused on the adverse sustainability impacts statement. This disclosure on entity level needs to be published by both FMPs and FAs with more than 500 employees on group level or when considering adverse sustainability impacts in their investment decisions and/or advice. But the SFDR regulation imposes more disclosure obligations on the product level. The timelines and the exact requirements for these disclosure obligations are not (fully) known yet.
We do know however that FMPs, or better said, producers of financial products that are described under article 8(1), 9(1), 9(2) and/or 9(3) of the SFDR regulation, will need to report via various means to their clients on the sustainability impacts related to the financial product. FAs, providing investment advice which includes any of the aforementioned products will need to ensure they make the product related disclosures (as published by the FMPs) available to their clients.
Article 8(1) products: Financial products that are promoting environmental or social characteristics Article 9(1), 9(2) and/or 9(3) products: Financial products with a sustainable investment objective Financial products covered under this regulation: - portfolio management; - an alternative investment fund (AIF); - an IBIP; - a pension product; - a pension scheme; - a UCITS; or - a PEPP.
Product level disclosure obligations
In the final RTS, we expect to learn more about the stipulations on the product level disclosure obligations. On the product level the following disclosure obligations can be distinguished:
- Pre-contractual disclosure for financial products: a template will be mandatory and made available in the final RTS. Disclosure of information will most probably be done via existing pre-contractual documents such as the prospectus document. In addition, the Taxonomy Regulation will impose additional pre-contractual disclosure obligations.
- Website product disclosure: the requirements are largely known and described in chapter IV of the Joint Consultation Paper. Not clear yet are the dates on when the information must be available to investors.
- Product disclosure in periodic reports: a template will be mandatory and made available in the final RTS. Disclosure of information will most probably be done via existing periodic reports like the annual report. In addition, the Taxonomy Regulation will impose additional obligations relating to disclosing information in periodic reports.
In our next blog post we’ll focus on definitions and stakeholders involved, the FMPs and FAs and the reporting obligations as imposed by the SFDR regulation.
In the meanwhile: we like to hear your thoughts and concerns in relation to the SFDR as well as the Taxonomy Regulation. Please share them with us and let’s get in touch! You can reach me via LinkedIn or send me an e-mail at firstname.lastname@example.org.
If you have any questions about our SFDR solutions or fund data flows, please contact:
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