The European Supervisory Authorities (“ESAs”) published the final Regulatory Technical Standards (“RTS”) in February, which supplement Regulation (EU) 2019/2088 (“SFDR”). The RTS specify further the content to be disclosed in respect of Financial Products (“FP”) and Financial Market Participants (“FMP”) as defined within SFDR. The European Commission is expected to endorse the RTS within 3 months of their publication.

Financial Product disclosures for Light Green Products (Art 8) and Dark Green Products

(Art 9)

The sustainability characteristics or objectives of financial products are to be disclosed as an annex to the respective sectoral pre-contractual and periodic documentation respecting mandatory templates, as well as on websites.

• Pre-contractual disclosures of ESG characteristics and sustainable finance objective: the draft RTS for pre-contractual disclosures provide the detailed content and presentation of the information to be disclosed at the pre-contractual documentation. The RTS include an obligation to include details on how a Light Green Product with environmental/social characteristics or a Dark Green Product with a sustainable investment objective intends to meet these characteristics or that objective.
• Website disclosures: the draft RTS for product website disclosures set out the details of the content and the presentation of information to be publicly disclosed on the website by the FMP.
• Product-level periodic disclosures: the draft RTS specify the extent to which Light Green Products with environmental and/or social characteristics meet those characteristics by means of relevant indicators, and, for Dark Green Products with sustainable investment objectives, the overall sustainability-related impact of the product by means of relevant sustainability indicators and, where applicable, by a benchmark comparison.

Financial Market Participants disclosures at entity level

The principal adverse impacts of investment decisions on sustainability factors should be disclosed on FMP’s website for which the draft RTS introduce a mandatory reporting template to use for the statement on the principal adverse impacts of investment decisions on sustainability factors. The disclosures focus on a set of indicators for both i) climate and environment-related adverse impacts, and ii) adverse impacts in the field of social and employee matters, respect for human rights, anti-corruption and anti-bribery matters. Further information on the different indicators for principal adverse impacts are listed in the draft RTS.

As already included in article 4 of SFDR, the principal adverse impacts reporting is based on the principle of proportionality: for companies with fewer than 500 employees, the FMP principal adverse impact reporting applies on a comply-or-explain basis, whereas for companies with more than 500 employees, the entity-level principal adverse impact reporting will become mandatory as of 30 June 2021 with a reference period of the previous calendar year. If we take into account the different implementation dates of SFDR and the draft RTS, the first full disclosure is to be published in June 2023 with respect to the 2021 reference period.

Next Steps

As almost no FP categorized as Light Green Products or Dark Green Products product has considered the draft RTS at the SFDR implementation on 10 March 2021, the relevant product disclosure should be revised as described above and published accordingly in the pre-contractual documents and on the website in advance of the expected effective date of the RTS which is understood to be 1 January 2022.

For more information please contact Cord Rodewald or your Carne Relationship Manager.

Ireland

Cord Rodewald
Director Compliance
+ 352 26 73 23 51
cord.rodewald@carnegroup.com