A) SFDR / TR: recent developments, status
1. SFDR RTS: finally published in the OJEU
Last week, the long-awaited final version of the Sustainable Finance Disclosure Regulation (SFDR) technical standards were legally published in the Official Journal of the EU (OJEU).
Drafted by the European Supervisory Authorities (ESAs), these outline the disclosure rules and templates facing financial market participants (FMPs) at entity and product level, applicable from 1 January 2023. This includes updated pre-contractual and periodic reporting templates for ‘sustainable’ products, classed as either “light green” (per SFDR art.8) or “dark green” (per SFDR art.9).
The ESA’s latest disclosure rules (p3-74) are now aligned with the Taxonomy regulation (TR). This was recently updated to include gas and nuclear energy as ‘transitional’ activities within set environmental objectives.
The finalised SFDR disclosure templates (per RTS annexes I-V) have now been made available.
The ESAs recently pledged to issue ‘practical application Q&As’ to “promote a better understanding of the RTS”, after publication in the OJEU.
How can Kneip help? We provide a full solution for the production and monitoring of SFDR disclosure. Find out more.
2. CSSF: deadline set for latest SFDR “fast-track” visa-stamp
The Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg quickly responded to the SFDR/TR RTS legal publication. They issued a communiqué to clarify interim expectations from local UCITS and AIF firms, covering four areas:
a) Reminder of the deadline for specific updates
FMPs are obliged to present sustainability-related disclosures for their financial products (subject to SFDR art. 8 and 9) before 1 January 2023. These are detailed in the recently approved RTS, which aligns finalised SFDR product pre-contractual documents and periodic report templates with the EU Taxonomy information now required.
b) CSSF filing of required SFDR product disclosures
i. Product pre-contractual documents
FMPs must submit their updated fund prospectus and product pre-contractual disclosure documents by 31 October 2022 latest, in order to secure a CSSF visa-stamp ahead of the SFDR deadline. The prospectus should contain only SFDR-related product updates, filed per CSSF set procedure. UCITS funds must also supply an RTS confirmation letter (per CSSF template, to follow “shortly”). These documents must be electronically filed with the CSSF (as stated in circular 19/708).
ii. Product periodic reports
FMPs must ensure that their annual reporting issued from 1 January 2023 contains the required SFDR product periodic reporting presented as an annex (by using the mandatory ESA templates).
iii. Additional guidance
The CSSF expects to receive a dedicated precontractual and periodic disclosure template per sub-fund/compartment. They state that product disclosure templates are not to be amended, although FMPs may adapt the size and font type of characters and the colours (per art.2 of the RTS).
c) Regulatory developments
The CSSF remind firms of the ESA’s mandate to amend the current SFDR/TR RTS in relation to the recently updated Taxonomy before 30 September 2022. Meanwhile, they recommend firms consult ESMA’s recent SFDR/TR supervisory briefing for general guidance. The CSSF also indicate that ESMA are discussing the launch of a Common Supervisory Action (CSA) to analyse SFDR L1, L2 disclosure in the course of 2023.
d) Data Collection exercise
Finally, the CSSF intends to shortly launch a dedicated data collection exercise to “digitally collect the information contained in the precontractual and periodic disclosure templates”. This will also cover AIFs managed by a Luxembourg based AIFMs (i.e. “not concerned by their latest filing procedures”).
3. Other NCA “fast-tracks” set to follow
The Central Bank of Ireland (CBI) are expected to shortly announce a similar fast-track filing procedure for the latest SFDR/TR RTS compliance (including their deadline and specific process details).
Elsewhere, there are currently no SFDR RTS disclosure related updates from either the Federal Financial Supervisory Authority (BaFin) in Germany, or L’Autorité des marchés financiers (AMF) in France.
4. Reminder: earlier SFDR “fast-track” approvals
The CSSF has previously staged SFDR-related “fast-track” approvals of amended ‘sustainable’ UCITS / AIF prospectuses, ahead of earlier deadlines:
i. Dec 2020: original SFDR level 1 ‘principles-based’ disclosure – before 10 Mar 2021
ii. Dec 2021: pre-contractual disclosure of TR level 1 climate objectives – before 31 Dec 2021.
NB: on this occasion, the CSSF encouraged draft SFDR RTS pre-contractual disclosure templates to be “completed as far as possible on a best effort basis” during the transition period.
However, in August 2022: that option is no longer available.
The CBI also activated prior SFDR-related “fast-track” authorisations, back in Dec 2020 and Nov 2021.
B) Other EU-ESG legal developments
1. UCITS, AIFMD: SFDR-amended from 1 Aug 2022
On Monday this week, SFDR-related sustainability rules for UCITS and AIFMD fund firms came into effect.
For both regimes, asset managers must now formally apply ‘sustainability risks’ and ‘sustainability factors’ as part of their general fund management and investment due diligence policies. This includes consideration of the relevant principal adverse impacts [PAIs], where applicable.
The SFDR-updated version of the CSSF UCITS Regulation was published in the official Luxembourg journal.
2. MiFID II: first set of SFDR amendments apply from 2 Aug 2022
“It’s going to be difficult to explain to clients who aren’t savvy on EU regulation, what this all means in practical terms” Linklaters, 2 August 2022
On Tuesday, MiFID II became the latest EU regime to be legally updated in relation to SFDR.
Investment firms are now obliged to apply ‘sustainability factors, risks and preferences’ across their organisations and operations. Recent regulatory responses include:
- Luxembourg: another CSSF communiqué outlines their interim MiFID II stance. Despite the current shortage of SFDR product-related data, supervised entities are to “collect and take into account all relevant information” related to the sustainability preferences of new and existing clients.
- France: the AMF updated their website, explaining how local financial advisors are expected to integrate sustainability preferences, ongoing.
- Netherlands: the Autoriteit Financiële Markten (AFM) are reportedly applying a “light-touch approach” to the latest MiFID II obligations, acknowledging the current “lack of clarity”.
ESMA’s related MiFID II guidelines – which propose an updated suitability assessment (to reflect client sustainability preferences) – have yet to be finalised. Meanwhile, there is continued media coverage of general market uncertainty and retail investor confusion.
FinDatEx previously recommended that from 2 August, firms should use their revised European MiFID Template (EMT v4.0), following delivery of the European ESG template (EET v1.0) in June. It was recently reported that “over half” of EU fund firms are yet to make available their initial version of the EET.
C) Trust Kneip with the EET
Meanwhile, the Kneip market-leading ESG disclosure solution includes an end-to-end EET package (data collection, template production and dissemination). It remains available to all ESG latecomers, for rapid deployment, within the scarce time remaining.
Get in touch to book a demo with our experts.