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The SFDR RTS on taxonomy-related disclosures and a further delay to implementation

  • Europe
  • ESG
  • Financial services and markets regulation
  • Financial services and markets regulation - ESG
  • Investment funds and asset management
  • ESG
  • Financial services



In October 2021, the European Supervisory Authorities (“ESAs”) published their long awaited final report (the Report”) including the draft Regulatory Technical Standards on the taxonomy-related disclosures (“Taxonomy RTS” ) for financial products subject to the disclosure requirements under Article 8 and Article 9 of Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector (“SFDR”).  In November 2021 the Commission wrote to the ECON committee of the European Parliament postponing the implementation of the RTS until 1 January 2023.

Background and scope

In broad terms, the aim of the Taxonomy RTS is to contribute to the establishment of a single rule book for level II disclosures under the SFDR and Taxonomy Regulation ((EU) 2020/852) and to provide rules on disclosures related to investments in environmentally sustainable economic activities.

By way of background, under Article 5 and Article 6 of the Taxonomy Regulation, financial products which fall under the category of Article 8 or Article 9 SFDR are required to make disclosures, including “how and to what extent” their investments are aligned with the EU taxonomy (please see our previous article on the Taxonomy Regulation for further information).  To clarify, this is a Level 1 obligation and the Taxonomy RTS now builds on this with more detailed requirements.

We note that the Report now clearly proposes to treat these products as a “sub-set” of the larger article 8 or 9 SFDR product ‘categories’ and refers to them as “Article 5 and 6 products”.

 What are some of the key changes proposed by the Taxonomy RTS?

  • Amendments to the mandatory templates: The Taxonomy RTS includes amended mandatory pre-contractual disclosures templates for Article 8 and 9 SFDR products, so that now they cover requirements of Article 5 and Article 6 Taxonomy Regulation.
  • Use of KPIs in the Taxonomy-Alignment Calculation for Non-Financial Undertakings: Of the 3 KPIs used for calculating taxonomy-alignment: (i) turnover; ii) capital expenditure (“Capex”); and iii) operating expenditure (“Opex”), turnover will now be the default option for pre-contractual disclosures for non-financial undertakings.  Capex or Opex may only be used where appropriate given the features of the financial product, and the same KPI must be used for all investments within the pre-contractual disclosure.  However, for periodic disclosures for non-financial undertakings, all 3 KPIs must be shown.
  • Do No Significant Harm Principle: The derogation that required only taxonomy-aligned sustainable investments to comply with the Do No Significant Harm Principle (“DNSH”) has been removed.  This means that the DNSH and related rules will apply to all sustainable investments (whether or not taxonomy-aligned).
  • Principal Adverse Impacts Disclosures: Where requirements relating to the principal adverse impacts (“PAI”) disclosures apply under Article 7 SFDR from 30 June 2023, financial products will need to include information on its website to confirm how PAI on sustainability factors are considered, with reference to the period 1 January 2022 to 31 December 2022.
  • Sovereign Bonds: In addition to the current taxonomy-alignment calculation which excludes sovereign bond exposure, an additional calculation will now be required which includes such data.  This change is due to concerns that a calculation that did not take sovereign bond exposure into account would lead to inaccurate scores for financial products with a higher exposure to such investments.
  • Derivatives and Netting: Derivatives should not be taken into account when calculating the KPI numerator.  However, netting should be included, to ensure a fair representation of the economic exposure to securities.
  • Auditor’s/third party’s assessment: The Taxonomy RTS now requires that the description of the investments made by the financial product in taxonomy-aligned economic activities, includes a disclosure as to whether an auditor/third party will provide assurance as to the compliance of those investments with the requirements laid down in Article 3 of the Taxonomy Regulation.

What’s next?

In terms of the Taxonomy RTS, the EU Commission will decide whether to endorse it within 3 months of its publication (by 22 January 2022) after which it will need to be approved by the European Parliament and the Council.

In the broader context, the EU Commission has announced its intention to incorporate all the SFDR RTS into one instrument, to establish a single rule book for sustainability disclosures under the SFDR and the Taxonomy Regulation.  On 25 November 2021, the Commission postponed the date on which the finalised rules and bundled RTS will apply to 1 January 2023, in a letter addressed to the ECON committee of the European Parliament.  This is the second postponement of the application date.


Our in depth understanding of the sector means that we are well placed to advise you on the scope and implications of the Taxonomy and SFDR, as well as opportunities arising from the trend towards impact investing and sustainability more generally.