Coming up: Level 2 SFDR and Taxonomy disclosure requirements in one rulebook

Earlier today the ESAs published a consultation paper with an updated version of the draft SFDR RTS (updated from the version included in the previous 4 February SFDR Final Report) – but this time to include Level 2 provisions proposed under the Taxonomy Regulation.

By way of recap, the Taxonomy Regulation requires FMPs to update their SFDR Article 8/9 disclosures by 1 January 2022 to set out “how and to what extent” the underlying investments of the Article 8/9 product are in Taxonomy compliant economic activities. The consultation paper published today sets out the ESAs’ detailed Level 2 proposals and templates for embedding that disclosure in the SFDR disclosures / reports for Article 8/9 products. The back end of the consultation paper includes a consolidated version of the SFDR RTS with all the changes in one place.

From a quick look, there are some unhelpful suggestions / provisions in the consultation paper. For example, the ESAs are consulting on whether the FMP’s statement of Taxonomy compliance at the product level should be subject to assessment by auditors or other third parties. It is also less clear now whether firms are required to undertake a Taxonomy compliance assessment for all Article 8/9 products, or whether they can choose to opt out by including the Article 7 Taxonomy Regulation disclaimer which just states that the underlying investments of the product are not Taxonomy compliant.

Timing: The consultation will be open until 12 May, and the final report with a draft RTS is expected by late June or early July 2021. In terms of the procedure, noting that the Commission is currently considering the earlier version of the draft SFDR RTS published by the ESAs on 4 February (see Final Report), there is likely to be a time lag and firms will likely have to contend with 2 versions of the SFDR RTS this year. We understand that this is the Commission’s initial view as well i.e. they will complete work on the earlier SFDR RTS first and then complete work on the Taxonomy related updates by June/July. However, we would suggest that firms have regard to this new consultation paper in their current SFDR Level 2 implementation plans.

Please do let us know if it would be helpful to discuss.