19 March 2021

EU Sustainability Update – Friday 19th March 2021

1. SFDR: more RTS changes, another consultation

Last week (10 March), The European Commission’s Sustainable Finance Disclosure Regulation (SFDR) was legally applied (at level 1) in the European Union. We await market trends to formally emerge with interest, including the extent to which fund managers have applied ESG facts to their organisation and products (i.e. evident in their latest prospectus, marketing materials, and websites), following widespread industry consultation with legal experts.

Most firms are now also busily preparing for their challenging level 2 disclosures (provisionally scheduled to start from January 2022). Up until this week, they’ve had plenty of recent European Supervisory Authorities (ESAs) material for necessary referral, including:

  • ESAs (04/02): “final” report (195 pages) draft SFDR regulatory technical standards (RTS)
  • ESAs (25/02): Supervisory statement (10 pages) of RTS application timelines e.g. entity-level principal adverse impact statement, product-level pre-contractual disclosure and periodic reporting
  • ESMA (26/02): Final report (178 pages) for additional Taxonomy regulation (TR) non-financial statements disclosure (including asset managers’ key performance indicators)

On Wednesday afternoon, firms were presented with another 93-page ESA document, this time seeking interim feedback on detailed proposals to create a “single rulebook” by amending the SFDR RTS to incorporate additional Taxonomy regulation disclosure rules. As before, these concern financial products that either “promote environmental characteristics” or invest in “an economic activity that contribute to an environmental objective” (i.e. as per SFDR articles 8 and 9).

To cut corners, the ESAs have shaved off one month from the customary consultation period (ending 12 May 2021). Nonetheless, with a genuinely “final” draft RTS not expected until late June/early July 2021, the EC ratification process (usually 3 months, at least) will be deferred, alongside further scrutiny from the European Parliament and Council scrutiny. This mean the industry are likely to be kept waiting until the autumn for a definitive set of ESG disclosure requirements (and a finalised legal timetable) to appear.

Meantime, with January 2022 fast approaching, there remains no readily available response to the ESA’s letter sent to the EC on 7 January, highlighting generic ‘priority issues related to SFDR application’.

2.Selection of recent sustainable finance market updates


a) “ESG market may have reached a turning point”: so says EFAMA (including Kneip as a member) in their latest Markets Insights issue, citing “strong UCITS investor demand” within superior, well-presented analysis.

b) “Much confusion” now anticipated: c/o UK asset manager research, which indicates a “multitude of different approaches in the space”; meantime, “…77% of organisations will look at the ESG rating of an investment, while 60% will focus on ESG labels such as the SFDR rating”.

c) Firms ‘underestimating’ SFDR impact: Fidelity’s European CEO prescribes SFDR article 8 categorization as “a sine qua non” [i.e. absolutely necessary] for large fund selectors, while confirming that 55 funds / 67% of their EEA assets under management are now officially classified accordingly.

d) SFDR level 1 “fault-line emerging”: according to one global legal firm, with asset managers reportedly fearing reputational damage if they are forced by regulators to downgrade products formally marketed as SFDR compliant (i.e. article 8 or article 9)

e) UK-AMs face “significantly higher” SFDR compliance costs: i.e. compared to their EU rival firms, c/o Bloomberg Intelligence report that also identifies several notable global firms that “may struggle” to administer numerous disclosure rules, ongoing.

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