EU Sustainable Finance Disclosure Regulation and EU Taxonomy: Regulatory Technical Standards update

Final RTS

The final RTS as published by the European Commission on 6 April 2022, consist of one Delegated Regulation. The RTS define details on the implementation of ESG-related disclosure requirements under the SFDR and the Taxonomy Regulation at entity and product level and include five annexes with templates for principal adverse impact statements, precontractual disclosure and periodic reports. The Delegated Regulation will now have to be translated into all official EU languages. However, the European Parliament and the Council have three months from the date of notification of the adoption by the Commission to raise objections to the RTS. As planned, the final RTS are envisaged to become applicable from 1 January 2023.

ESA Statement

The main points from the ESAs update of the supervisory statement in light of the publication of the final RTS by the Commission are:

Transparency under Art. 5 and 6 of the Taxonomy Regulation

• The supervisory expectation prior to the application of the RTS is that in order to comply with the disclosure requirements of Article 5 and 6 of the TR, the extent of environmentally sustainable investments (also known as taxonomy alignment) should be expressed as a percentage to which underlying investments in the financial product are taxonomy aligned. Where information is not publicly available, estimates should not be used, but financial market participants may rely on equivalent information provided by investee companies or third party providers.

• Prior to the publication of the final RTS the ESAs update stated that during the interim period, the draft RTS can be used as a reference for the purposes of applying the provisions of the SFDR and the TR. Now that the final RTS are published it can be expected that financial market participants can use them as reference during the interim period. In this context, it is important to note that the European Parliament or the Council have the right to object the final RTS within a period of three months from the date of notification of the adoption of the Commission Delegated Regulation. Nevertheless, the ESAs recommended to prepare for the application of the RTS and to use the interim period to do so.

Principal Adverse Sustainability Impact Statements

• The ESAs confirmed that the principal adverse sustainability impact statements on an entity level set out in the RTS should apply from 1 January 2023. This is also in line with the now published final RTS which regulate in Article 4 that by 30 June each year, financial market participants shall publish Principal Adverse Sustainability Impact Statements on their website. The first statement should therefore be published by 30 June 2023 in respect of a reference period corresponding to the calendar year of 2022. Annex I of the final RTS provides a template for such statements, which financial market participants shall use.

Application Timeline for the first Periodic Disclosures

• The ESAs confirmed their expectation that all periodic disclosures referred to in Article 11(2) SFDR, published or prepared on or after 1 January 2023, must provide additional details provided by Chapter V of the RTS. The final RTS provide a template for periodic disclosures in Annex IV.

Authored by Jochen Seitz, Rita Hunter, Roman Rehmke, Simon Recher, Mathilde Soetens, James Alder, Ines, Manero Flock, and Isha Thacker.