PLACE FINANCIÈRE & MARCHÉS — Fonds

Carte blanche – Alfi 2021

Sustainability disclosure challenges: the ever-changing timeline



Elodie Vandewoestyne, manager Strategy Regulatory and Corporate Finance and Francesca Messini, partner and Fintech & Sustainable Finance leader at Deloitte Luxembourg. (Photo: Deloitte Luxembourg)

Elodie Vandewoestyne, manager Strategy Regulatory and Corporate Finance and Francesca Messini, partner and Fintech & Sustainable Finance leader at Deloitte Luxembourg. (Photo: Deloitte Luxembourg)

On 10 March 2021, the Sustainable Finance Disclosure Regulation (Regulation [EU] 2019/2088, or SFDR) entered into force, marking the first milestone in the new sustainability disclosure requirements for financial market participants (FMPs).

The SFDR’s level 1 requirements had several impacts – at the entity level, FMPs needed to integrate sustainability risks into their investment process through a sustainability risk policy and remuneration policy. These requirements also introduced the concept of principal adverse impacts (PAI), requiring FMPs to disclose whether they considered the adverse impact of their investments on sustainability factors.

At the product level, the SFDR introduced a new classification system regarding environmental, social and governance (ESG) neutral products (Article 6), light green products (Article 8) and dark green products (Article 9). FMPs needed to classify their products and enrich their pre-contractual documents with related sustainability information, and publish this data on their website.

The next step is the application of the SFDR’s level 2 requirements, which was initially planned for 1 January 2022 as the SFDR’s final regulatory technical standards (RTS) were expected to be adopted in June 2021. However, due to the RTS’ length, technical details, expected amendments and delayed submissions by the ESAs (European Supervisory Authorities), the European Commission decided to postpone the SFDR level 2 requirements by six months, extending the application date to 1 July 2022.

What does this mean for FMPs?

While this six-month deferral was welcomed by the industry, some uncertainties and challenges remain. First, Article 11 of the SFDR that concerns the “transparency of the promotion of environmental or social characteristics and of sustainable investments in periodic reports” still applies. Similarly, the EU Taxonomy Regulation, which was expected to apply at the same time as the SFDR level 2 requirements in January 2022, has not been postponed. This means FMPs are still required to update their pre-contractual documents and periodic reports with EU Taxonomy-required information (Articles 5, 6 and 7) and SFDR requirements by January 2022. Considering the slow progress of ESG data providers to calculate financial products’ taxonomy alignments, publishing this information by January 2022 could prove very challenging.

Second, as the RTS’ final adoption date is still unknown (tentatively between September and November 2022), FMPs are unsure of how to best approach the inclusion of RTS requirements in their disclosures. One option is to start using the draft RTS in their updated pre-contractual documents for the January 2022 deadline to avoid multiple changes and allow more time for implementation, taking the risk that the RTS could be significantly amended. Another option is to wait for the RTS’ final adoption before making any changes, which will generate an important workload between the release of the final RTS and 1 July 2022.