Stockholm (NordSIP) – About a year ago, the European Commission tasked the three European Supervisory Authorities – The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA), aka the ESAs – with reviewing and revising the Regulatory Technical Standards (RTS) supplementing EU’s Sustainable Finance Disclosure Regulation (SFDR). The authorities have been working to fulfil their mandate since, and on 12 April 2023, they published a joint Consultation Paper proposing further technical revisions to the SFDR to address issues that have emerged since the directive was first introduced.
In the Consultation Paper, the ESAs seek feedback on several amendments, including the following:
- Extending the list of social indicators for the disclosure of the principal adverse impacts (PAIs) of investment decisions on the environment and society, such as earnings from non-cooperative tax jurisdictions or interference in the formation of trade unions;
- refining the content of other indicators for adverse impacts and their respective definitions, applicable methodologies, formulae for calculation as well as the presentation of the share of information derived directly from investee companies, sovereigns, supranationals or real estate assets; and
- incorporating product disclosures regarding decarbonisation targets, including intermediate targets, the level of ambition and how the target will be achieved.
The regulators also seem concerned that if the current requirements for compliance with the “do no significant harm” (DNSH) test are inconsistently applied, this would undermine the comparability of financial products and could lead to greenwashing. Seeking to reduce the complexity and uncertainty arising from the DNSH test, the ESAs suggest several alternatives. Although the default option would be to keep the relatively new framework unchanged, they envision possible quantitative thresholds for PAI indicators in order to more objectively determine that a sustainable investment does not significantly harm environmental or social objectives. Another option would be to introduce the concept of “safe harbour for environmental DNSH”, meaning that investments in activities that already meet the criteria as “environmentally sustainable” under the Taxonomy Regulation would not be required to complete a further DNSH test in respect of environmental objectives under SFDR.
Conscious of the criticisms that the pre-contractual and periodic disclosure templates (Annexes 2 to 5 of the RTS) are excessive in length and complexity, the ESAs have developed new versions of the templates. Among other changes, the authorities propose a new “dashboard” at the start of each template, which should attract the reader’s attention to the most vital information and alleviate comprehensibility concerns. The ESAs seek further input from stakeholders on changing the language, layout and structure to make the templates easier to use.
Relevant feedback is requested by 4 July 2023, as the ESAs have promised to deliver their final report to the European Commission by the end of October 2023. After considering the comments received, there will be a joint public hearing and targeted consumer testing. Meanwhile, funds are still required to ensure disclosure compliance with the existing requirements under SFDR and to publish information according to the current versions of the disclosure templates.
