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    ESAs Publish Draft Regulatory Standards on Disclosures Under SFDR

    February 04, 2021

    ESAs published final report on the draft regulatory technical standards for the content, methodologies, and presentation of sustainability-related disclosures under the Sustainable Finance Disclosure Regulation or SFDR. These standards reflect the responses to the consultation that was launched on April 23, 2020. The standards also contain templates for pre-contractual and periodic product disclosures that were subject to an online public survey and to two consumer testing exercises conducted in the Netherlands and Poland. ESAs have delivered this final report to EC, which is expected to endorse the technical standards within three months of their publication.

    The proposed standards aim to improve environmental, social, and governance (ESG) disclosures to end-investors on the principal adverse impacts of investment decisions and on the sustainability features of a wide range of financial products. This will help to respond to investor demands for sustainable products and reduce the risk of greenwashing. The SFDR empowers ESAs to develop technical standards on entity-level principal adverse impact disclosures and product-level disclosures:

    • Entity-level principal adverse impact disclosuresThe principal adverse impact of investment decisions on sustainability factors should be disclosed on the website of an entity. The disclosure should take the form of a statement showing how investments adversely impact indicators in relation to climate and environment, social and employee matters, respect for human rights, and anti-corruption and anti-bribery. ESAs have updated the list of indicators for principal adverse impacts. The principal adverse impact reporting in the SFDR is based on the principle of proportionality; for companies with fewer than 500 employees, the entity-level principal adverse impact reporting applies on a comply-or-explain basis.
    • Product-level disclosures—The sustainability characteristics or objectives of financial products are to be disclosed in an annex to the respective sectoral pre-contractual and periodic documentation in mandatory templates and on the websites of providers. The proposals included in the draft technical standards relate to the rules for how this disclosure should be carried out, ensuring transparency to investors regarding how products meet their sustainability characteristics or objectives. They also set out the disclosures that should be provided by products that have designated an index as a reference benchmark. Finally, the product-level proposals set out suggested provisions for disclosing how a product based on sustainable investments complies with the "do not significantly harm" principle. 

    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 March 10. 2021, the application of the technical standards will be delayed to a later date. In these draft standards, ESAs have proposed the application date of the standards to be January 01, 2022. ESAs plan to issue a public supervisory statement before the application date of SFDR, to achieve an effective and consistent application of the requirements of SFDR and consistent national supervision of the SFDR. 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.


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    Keywords: Europe, EU, Banking, Insurance, Securities, Sustainability-Relate Disclosures, Climate Change Risk, Sustainable Finance, Disclosures, ESG, Taxonomy Regulation, SFDR, EC, ESAs

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