EU: SFDR RTS – ESAs final report published confirming new raft of amendments to SFDR sustainability disclosures

The European Supervisory Authorities (ESAs) have published their final report with proposed amendments to the SFDR RTS. The revised draft RTS, which was consulted on earlier this year, includes:

• changes to the principal adverse impacts (PAIs) indicators – additional mandatory and voluntary social PAI indicators have been added, some existing PAIs have been amended and additional data points have been added to PAI disclosures (e.g., estimated coverage figures); 
• new detailed disclosures for financial products that have greenhouse gas (GHG) emission reduction targets, including within the pre-contractual, website and periodic disclosures – these are likely to have a significant impact on financial products with GHG reduction aims / targets today, given new mandatory requirements regarding the coverage of asset classes and calculation methodologies; 
• other changes to the financial product templates – in particular, the ESAs are proposing to proceed with the new “dashboard” summary of key information as consulted on;
• a requirement to disclose the thresholds or criteria used as part of the “do not significant harm” (DNSH) assessment undertaken in respect of “sustainable investments”, and a requirement to explain whether the proportion of sustainable investments within the financial product have been calculated on an economic activity basis (similar to the Taxonomy-alignment calculations) or investment basis; 
• specific requirements for calculating and netting derivative exposures in PAI calculations by borrowing from the leverage exposure calculations for derivatives in the AIFMD Delegated Regulation. The ESAs have also extended the netting requirement for sustainable investment calculations, but helpfully have not proceeded with their initial proposal of treating derivatives as being incapable of making a positive E/S contribution; 
• other amendments – including regarding disclosures for multi-option products and the machine readability of disclosures. 

The European Commission will decide whether to endorse the proposed changes to the RTS within the next three months. It is unclear however when the changes proposed by the revised RTS will take effect (if endorsed and adopted by the EU authorities). The changes proposed to the RTS are also separate from the broader review of SFDR being undertaken by the European Commission (see our client alert here).

Overall, the proposals will have significant implications for financial market participants (FMPs) – who will not only have to revisit their SFDR product and website disclosures (given the changes proposed to the templates and data points) but also revisit their entity-level PAI and DNSH methodology and disclosures (given the various changes to PAI indicators).  

You can find our detailed client note on the ESAs final report here.