The EU’s Sustainable Finance Disclosure Regulation (SFDR) came into effect in March 2021 aiming to activate behavioural change within the finance sector, these new rules require the financial market to integrate sustainability risks into their internal processes.
A key part of this regulation is linked to transparency, explaining how the manager of a financial product takes sustainability risks and adverse impacts on sustainability into account. There are both entity and product level requirements.
The difficulty of implementing SFDR requirements for investment products that consider sustainability issues will depend on the availability of the ESG data that will be required.
The SFDR is not a standalone piece of legislation but fits within a broader set of EU initiatives and policies structured around the EU Green Deal and the EU Sustainable Finance Action Plan that have been rolled out since about 2015.
The SFDR Timeline 2021/2022:
- March 2021, the three categories of the SFDR were implemented on a phased basis beginning with Level 1 SFDR.
- June 2021, larger FMPs disclosed their Principle Adverse Impacts (PAIs).
- 31st December 2021 signals the end of the reporting period.
- 1st January 2022 the new reporting period begins with Level 2 Regulatory Technical Standards (RTS).
- 31st June 2022 is the reporting deadline for PAIs
- From 30th December 2022 onwards, the new obligation for disclosures of PAIs at product level take effect.
What should firms do now?
Firms can take steps to ensure they meet the regulatory requirements and ensure a smooth implementation of these new ESG policies by reviewing their light green (Article 8), and their dark green (Article 9) products.
Review marketing documentation and assess whether any further product disclosures need to be made.
Firms must have a clear understanding of how their current sustainability risk disclosures are made to clients and investors, and if there are any gaps relating to SFDR compliance.
If you require some expertise to ensure you are SFRC compliant please contact Katherine Lord:
Katherine Lord | Partner, Head of Danos Consulting | +44 (0) 207 010 1153 | firstname.lastname@example.org