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Regulatory Briefing: EU supervisory authorities clarify SFDR’s technical standards

By Victor Smart and Madeleine Saghir

The three EU supervisory authorities have published clarifications on the draft regulatory technical standards relating to the implementation of the Sustainable Finance Disclosure Regulation.

The clarifications are about content, methodologies and presentation of certain areas of the SFDR, which aims to strengthen protection for end-investors and improve the disclosures that they receive.

The ESAs seek to spell out in granular detail how the RTS should be applied and to resolve ambiguities. For example, it addresses how greenhouse gas emissions from jointly owned real estate should be accounted for; it considers how a financial product with a mix of assets can align with the green taxonomy; and it explains the application of the EU’s classification of different types of economic activity.

Included are advice on: use of sustainability indicators; principal adverse impact disclosures; financial product disclosures; direct and indirect investments; and taxonomy-related financial product disclosures. Also covered are the “do not significantly harm” disclosures and disclosures for products with investment options.

The three ESA organisations are the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority.

The big supervisors say: “The statement is part of the ESAs’ ongoing efforts to promote a better understanding of the disclosures required under the technical standards of the SFDR, ahead of the planned application of the rules on 1 January 2023.”

Private sector advisers say: “While the intention behind RTS under SFDR is to deliver greater transparency to investors the granularity of data reporting is likely to place an increased regulatory and financial burden on fund managers and asset servicers at a time when margins are already being squeezed,” Rod Cooper, partner at asset management consultancy Cooper Wood & Associates, told Sustainable Views. He raised concerns over potentially higher management fees being passed on to investors.

A service from the Financial Times