The Joint Committee of the three European Supervisory Authorities (JC-ESAs) delivered its final report concerning draft regulatory technical standards (RTS) on the content, methodologies, and presentation of disclosures under the Sustainable Financial Disclosure Regulation (SFDR) to the European Commission (EC) for endorsement (which is expected within three months). The proposed RTS aim to strengthen protection for investors by improving environmental, social and governance (ESG) disclosures on the principal adverse impacts of investment decisions and on the sustainability features of financial products. Financial market participants and financial advisers are required to apply most of the provisions on sustainability-related disclosures laid down in the SFDR from 10 March 2021; however, the application of the RTS will be later. The ESAs have proposed that the RTS should apply from 1 January 2022.

Entities should disclose as a statement on their websites the principal adverse impacts that investment decisions have on sustainability factors: the climate and environment, social and employee matters, and respect for human rights, anti-corruption, and anti-bribery aspects. The ESAs have updated the list of indicators for principal adverse impacts. The principal adverse impact reporting in the SFDR reflects proportionality: for companies with fewer than 500 employees, the entity-level principal adverse impact reporting applies on a comply-or-explain basis.

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 providers’ websites. The RTS contain a harmonised approach to all financial products: the same disclosures are required for a very broad range of products with different levels of granularity and length.

The 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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