EU Regulatory Update

Author: Clerkin Lynch LLP

Date Published 07/07/2022

RTS under SFDR Agreed 

Adoption of Regulatory Technical Standards under the Sustainable Finance Disclosures Regulation

On April 6th 2022 the EU Commission announced its finalisation of the regulatory technical standards (“RTS”) applicable to financial market participants in relation to disclosures under the Sustainable Finance Disclosures Regulation (“SFDR”), as well as related annexes. This also included the Principal Adverse Impact (“PAI”) reporting template and indicators, as well as the compulsory re-contractual and periodic templates applicable in the case of Article 8 and Article 9 products (contained in Annexes 2-5 respectively).

The SFDR mandates sustainability related disclosures for financial products, including funds. Initial obligations contained in the SFDR, which were effective from 10 March 2021, and the Taxonomy Regulation (the “TR”) are to be further supplemented by detailed rules contained in these RTS. Drafts of 13 relevant RTS had been issued by the European Commission, but these are not yet effective and nor have they been formally approved in final form. For this to occur they must be adopted by the European Commission and both the European Parliament and Council have the right to object to the drafts released before they are effective.

While this draft represents the final position of the EU Commission, the RTS will be subject to a three month period during which the European Parliament or the Council may object (and which period may be extended by a further three months). However, assuming that no objections are in fact received on the expiry of this three month (or six month) period the RTS will be published in the Official Journal of the European Union and enter into force on the twentieth day following this (i.e. July or October). The effective date of the RTS will however be 1 January 2023.


Supervisory Statement on the application of the SFDR

Separately an updated joint supervisory statement was issued by the three European Supervisory Authorities regarding the application of the Sustainable Finance Disclosures Regulation (“SFDR”) on 25th March 2022 (the “Statement”). This includes details of a revised timeline and their expectations in relation to the application of related measures.

The European supervisory authorities- being the European Banking Authority (“EBA”, the European Insurance and Occupational Pensions Authority (“EIOPA”) and the European Securities and Markets Authority (“ESMA”) respectively, issued the Statement with the aim of mitigating the risk of divergent application of the relevant legislation across the European Union and to achieve consistent application across member states, thereby ensuring a level playing field. The application of the RTS has been delayed to 1 January 2023.

The RTS will establish a framework of principal adverse impacts by 30 June each year with a reference period to the previous year. While the requirements of the SFDR relating to the entity level disclosures of principal adverse impacts have generally been applicable since 10 March 2021 on a comply or explain basis the additional detail specified for the sustainability impacts statement as set out in the RTS will apply from 1 January 2023. The periodic disclosures of financial entities must comply with the SFDR from 1 January 2022. Accordingly, 2022 period reports must comply with the relevant sectoral legislation. However, as the RTS are expected to apply from 2023 the additional detail required by the RTS will only apply from after that date. Accordingly, there remains some uncertainty as to the requirements until after that date.

The Statement clarifies that for periodic disclosures issued during the period 1 January 2022 and 31 December 2022 the draft RTS should be used as a reference although they will not yet be in force. The Statement recommends that National regulators encourage market participants to use this period to prepare for the full application of the finalized RTS from 2023 and prepare financial statements based on the draft text of the RTS.