ESAs Issue Recommendations for SFDR Disclosures

    Stockholm (NordSIP) -The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have published their Final Report with the draft Regulatory Technical Standards (RTS) for disclosures under the Sustainable Finance Disclosure Regulation’s (SFDR) as amended by Taxonomy Regulation.

    The draft RTS seeks to establish a single rulebook for sustainability disclosures under the SFDR and the Taxonomy Regulation to provide end investors with comparable information to make informed investment choices about investments of financial products in environmentally sustainable economic activities. The ESAs make the following 6 recommendations.

    For products under Articles 5 and 6 of the Taxonomy Regulation the report proposes the “inclusion of pre-contractual and periodic disclosures that identify the environmental objectives to which the product contributes and show how and to what extent the product’s investments are aligned with the EU Taxonomy”. Article 5 refers to “environmentally sustainable investments” and Article 6 is pertinent to “financial products that promote environmental characteristics”.

    For products under the same two articles, the report also deals with how and to what extent activities funded by the product are aligned with the EU taxonomy. The ESAs’ proposal argues that “the disclosures should include two graphs showing the taxonomy-alignment of investments of the financial product based on a specified methodology that calculates that alignment”. They also suggest that “an assurance provided by an auditor or a review by a third party that the economic activities funded by the product that qualify as environmentally sustainable are compliant with the detailed criteria of the Taxonomy Regulation.”

    Regarding pre-contractual and periodic disclosures, the report recommends “the inclusion of annexes with amendments to the mandatory templates for financial products that promote environmental and/or social characteristics or have a sustainable investment objective as defined in the SFDR, so that they include additional disclosures for Article 5 and Article 6 products under the Taxonomy Regulation.”

    Regarding the treatment of sovereign bonds the ESAs recommended the disclosure of the taxonomy-alignment of investments in two ways: one including sovereign exposures and one excluding sovereign exposures from the calculation.

    Moreover, to protect investors from the risk of greenwashing, the draft RTS contain a graph detailing all the investments of the financial product in the calculation. As there is no appropriate methodology to assess the taxonomy-alignment of sovereign bonds, the ESAs added a second graph showing the taxonomy-alignment of the financial product where all sovereign exposures are excluded from the calculation.

    The Commission will scrutinise the draft RTS and decide whether to endorse them within 3 months of their publication.

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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