ESG Regulation Monthly Round-Up

ESAs submit further SFDR interpretation queries to the European Commission

The European Supervisory Authorities (the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) (“ESAs”) published a further set of questions for the European Commission on 9 September 2022 relating to the interpretation of the Sustainable Finance Disclosure Regulation (“SFDR”). The questions have not yet been answered by the Commission but the industry will be glad to receive greater clarity on these given the critical areas they cover including the following:

  • How the definition of “sustainable investment” in Article 2(17) of the SFDR applies to investments in funding instruments that do not specify the use of proceeds, such as the general equity or debt of an investee company.
  • How should "investment in an economic activity that contributes to an environmental objective" or "investment in an economic activity that contributes to a social objective" in Article 2(17) of the SFDR be interpreted?
  • Whether financial products that have an Article 9(3) objective of reduction in carbon emissions can be either product with a passive or active investment strategy?
  • Whether a financial product can "promote" carbon emissions reduction as an "environmental characteristic" under Article 8, as opposed to having it as an "objective" under Article 9 only.
  • What it means to "consider" principal adverse impacts (“PAI”) is in Article 7(1)(a) of the SFDR.
  • Whether the average number of 500 employees should be understood to include workers who are assigned to a financial market participant even though they are employed by a third party.
  • Periodic disclosure frequency for portfolio management services.

ESMA publishes an updated infographic setting out the implementation timeline for sustainable finance

On 16 September 2022, ESMA published an updated infographic setting out an implementation timeline for key ESG measures including SFDR, the Taxonomy Regulation, the Corporate Sustainability Reporting Directive (“CSRD”), the Non-Financial Reporting Directive (“NFRD”), Markets in Financial Instruments Directive (“MiFID”), the Insurance Distribution Directive (“IDD”), the Alternative Investment Fund Managers Directive (“AIFMD”) and the Undertakings in Collective Investment in Transferable Securities Directive (“UCITS”). The timeline was subsequently updated on 26 September 2022.  Although it does not (hopefully!) contain any surprises it could act as a useful reference document given the wide range of connected initiatives.

Key dates include:

  • 22 November 2022 – Sustainability related provisions on product governance under MiFID apply.
  • 30 December 2022 – European Commission to issue evaluation of SFDR.
  • 30 December 2022 – Article 7 SFDR disclosures on product-level PAI consideration applies.
  • 1 January 2023 – Application of SFDR RTS including Articles 5 and 6 TR product disclosures for ‘all environmental objectives’.

ESAs final report on disclosure of financial products’ exposure to investments in fossil gas and nuclear energy activities under SFDR

The ESAs published a joint final report on 30 September 2022 on draft regulatory technical standards (“RTS”) on information to be provided in pre-contractual documents, on websites, and in periodic reports about the exposure of financial products to investments in fossil gas and nuclear energy activities.

The draft RTS amend the RTS laid down in Delegated Regulation (EU) 2022/1288 (“SFDR RTS”), which supplements the SFDR.

The draft changes focus on the disclosure of specific investments in fossil gas and nuclear energy-related environmentally sustainable economic activities (taxonomy-aligned investments) as part of the disclosures of the taxonomy-aligned investments of the financial product. The ESAs noted that the existing sector exposure disclosures required for periodic disclosures would also require the disclosure of fossil gas and nuclear energy investments. The existing website disclosures also contained sufficient cross-references to the pre-contractual disclosures to allow the appropriate transparency in those disclosures of the level of taxonomy-aligned fossil gas and nuclear energy investments.

The ESAs confirm in the accompanying press release that the disclosures in the proposed RTS are in line with the Complementary Climate Delegated Act.

2023 Work Programme of the Joint Committee of the ESAs and EIOPA Strategy 2023-2026  – SFDR elements

On 29 September 2023, the Joint Committee of the ESAs published the 2022 Annual Work Programme which detailed a key priority of the ESAs over the next year will be continuing to develop a number of RTS under the SFDR and work will continue to focus on mandates related to the introduction of targeted revisions and extensions of the technical standards and Q&As.  The ESAs will continue to coordinate and exchange disclosure standards for non-financial information in the context of the NFRD and of the successor CSRD once it is in force.

EIOPA’s Annual Work Programme for 2023 states that in the area of conduct of business policy, due to resource constraints, some initially envisaged activities have been postponed or scaled down.  For example, work on consumer testing within the scope of the SFDR will need to be postponed.

Next steps

We will continue to monitor for further developments in this fast-moving and ever-evolving area.



Authored by Rita Hunter, Paida Manhambara, and Melanie Johnson


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