The European Supervisory Authorities (ESAs) published a draft Regulatory Technical Standards (RTS) on the Sustainable Financial Disclosure Regulation (SFDR) on December 4, 2023. The proposals outlined therein are primarily aimed at improving the transparency and effectiveness of SFDR reporting.
The key highlights of the Draft RTS are:
- Extension of Social Principal Adverse Impact (PAI) Indicators: The ESAs are expanding the indicators used to measure the social impacts of investment decisions. This will provide a broader view of the social consequences of investment activities, allowing for more informed decision making.
- Refinement of PAI Disclosure Framework: Changes are proposed to the existing framework for disclosing principal adverse impacts on sustainability factors. This is expected to streamline and improve the clarity of disclosures, making them more accessible to investors.
- Introduction of Greenhouse Gas Emission Reduction Targets: The ESAs consider the requirement to disclose the greenhouse gas (GHG) emissions reduction targets of financial products to be an important addition. This aligns with global efforts to mitigate climate change and enhances transparency in how investments contribute to these objectives.
- Consumer-Friendly Financial Product Templates: After extensive consumer testing in four Member States, the ESAs propose improvements and simplifications to the financial product templates (Annexes II-V of the SFDR Delegated Regulation). A notable feature is a new “dashboard” offering a simple summary of key information, making it easier for consumers to understand and compare financial products.
- Enhanced Disclosure on Sustainable Investments: The updated RTS proposes improved disclosures on how sustainable investments comply with the “Do Not Significantly Harm” (DNSH) principle. This ensures that investments not only contribute positively to sustainability goals but also avoid significant harm to environmental and social factors.
- Revisions for Multi-Option Products (MOPs): The ESAs are revising provisions for products with investment options, such as MOPs, to cater to the diverse needs and preferences of investors.
- Technical Improvements: Other technical amendments include a harmonized calculation method for sustainable investments and a requirement for disclosures to be in a machine-readable format, enhancing accessibility and comparability.
Next Steps from regulatory perspective:
The European Commission is set to review and enforce these Regulatory Technical Standards in the upcoming three months. This development is expected to bring about a more robust and transparent framework for sustainable finance that aligns investment decisions with broader environmental and social objectives.
Our Regulatory Watch team is closely monitoring any further developments on the SFDR and Taxonomy regulations. As soon as the commission gives green light to the updated RTS, these will be incorporate into our standard service.
As part of our compliance commitment towards our clients, we provide regulatory updates in due time. If you have any questions, feel free to contact us. Our experts will gladly advise you on the details.
We offer standardized services on the full range of all relevant SFDR disclosure requirements. Benefit from our SFDR service with the different modules for your pre-contractual, periodic, web disclosure and PASI statement. We also offer modules covering the generation and collection of EET files.