One of the issues discussed in the Q&As on SFDR recently published by the ESAs is that the ESG data currently available from companies is insufficient. For the time being, the ESAs therefore allow financial market participants (FMPs) to use estimates and data obtained through additional research if no data is available directly from investee companies. If such third-party data is not available, the FMP is encouraged to disclose the percentage of investments without ESG data. Please read our blogpost on this here.
We are currently observing dynamic evolution of the regulatory landscape on sustainability topics: while the EU-SFDR has already entered into force in March 2021 and level 2 will follow from January 1st 2023, ESG disclosure requirements at corporate level are not aligned yet, neither at EU level nor at global level, and many extensions of reporting requirements are in the pipeline. Financial services providers increasingly integrating sustainability into their activities and adding ESG-focused products to their offerings, while at the same time reliant more and more on third-party ESG data and ratings services. Justifiable, this raises the question of when can we expect additional ESG data?
Here is an overview of the current status:
EU - Corporate Sustainability Reporting Directive (CSRD): the European Council gives final green light to corporate sustainability reporting directive (CSRD) on November 28, 2022. The CSRD will replace the current NFRD Reporting Directive and will introduce more detailed reporting requirements on the impact of corporate activities on the environment, human rights and social standards. The timeline foresees:
- reporting in 2025 on the financial year 2024 - for companies already subject to the NFRD;
- reporting in 2026 on the financial year 2025 - for large companies not currently subject to the NFRD;
- reporting in 2027 on the financial year 2026 - for listed SMEs (except micro undertakings), small and non-complex credit institutions and captive insurance undertakings;
- reporting in 2029 on the financial year 2028 - for third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.
Accordingly, more extensive and detailed ESG Data on European businesses, relevant for the SFDR Disclosures will only be available after 2025.
UK – The FCA announced on 22 November 2022 the formation of a group to develop a Code of Conduct for Environmental Social and Governance (ESG) data and ratings providers. Although the group is to start its work as soon as possible, there is no concrete timeline for when the reporting requirements will be due and come in force
Switzerland - The Federal Council adopted, on November 23rd, 2022, the implementing ordinance on climate disclosures for large Swiss companies. The public reporting covers disclosures on the financial risk a company incurs as a result of climate-related activities, as well as on the impact of the company's business activities on the climate. In addition, the company must outline the reduction targets it has set for its direct and indirect greenhouse gas emissions and how it intends to implement them. The ordinance will come into force as of 1 January 2024.
Cleversoft expects all these initiatives to support higher data quality, improving our capabilities to provide high quality SFDR reports with extensive data coverage.
Our Regulatory Watch team is closely monitoring any further developments on the SFDR and Taxonomy regulations. The cleversoft offering includes standardised services on all relevant SFDR disclosure requirements.
Benefit from the various modules of our SFDR service for your pre-contractual, periodic, web disclosure and PASI statement. In addition, we offer modules covering the generation and collection of EET files.
In line with our compliance commitment, we provide our clients with regulatory updates in due time.
If you have any questions our experts will gladly advise you on the details.