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The ESAs publish an updated joint supervisory statement on the application of SFDR

  • Europe
  • ESG - Sustainable Finance


On 25 March 2022, three European Supervisory Authorities - EBA, EIOPA, and ESMA (together the “ESAs”) published an updated joint supervisory statement (the “Joint Statement”) on the application of  Regulation 2019/2088 on sustainability disclosures in the financial services sector (“SFDR”) and Regulation 2020/852 on the establishment of a framework to facilitate sustainable investment (“Taxonomy Regulation”).  The objective of the Joint Statement is to achieve a consistent implementation and national supervision of SFDR and to prepare stakeholders for the application of underlying delegated acts.


Delay of the RTS and guidance in the interim period  

Application of level 1 requirements

The ESAs used the Joint Statement as an opportunity to remind financial market participants (“FMPs”) of an obligation to apply the majority of the SFDR provisions as of 10 March 2021 despite the delay of entry into force of the Regulatory Technical Standards ( “RTS”). Although the delay has brought uncertainty for FMPs, the ESAs pointed out that the application of SFDR is not dependent on the adoption of the RTS and level 1 requirements should be followed and applied in the meantime. At the same time, the ESAs encourage all FMPs and financial products to begin using the draft RTS and final reports published by the ESAs on 4 February 2021 and 22 October 2021 to prepare for the RTS coming into force, which expected to take place on 1 January 2023.

Disclosure of taxonomy alignment under the Taxonomy Regulation

The Joint Statement pointed out that delay in the adoption of the RTS has no impact on the application of the Taxonomy Regulation and disclosure of taxonomy alignment required under articles 5 and 6 and applicable to article 8 and 9 SFDR products.

Financial products must disclose how and to what extent their investments qualify as environmentally sustainable economic activities including the percentage of the overall portfolio those investments represent. As of 1 January 2022, this obligation applies to economic activities meeting article 3 Taxonomy Regulation criteria and classified as contributing to climate change mitigation or adaptation.  Financial products meeting the environmental objectives listed under article 9 Taxonomy Regulation will be required to comply as of 1 January 2023.

Due to the regulatory uncertainty caused by the delays in the adoption of the RTS and technical screening criteria, many FMPs currently take the view that the percentage cannot be disclosed until more clarification on the calculation method is provided. Nonetheless, the ESAs clearly state that the regulatory expectation is that an explicit quantification is disclosed on the basis of the provisions of the Taxonomy Regulation alone.

Take note that although estimates should not be used, if information on the taxonomy alignment is not readily available through public disclosures, the ESAs direct FMPs to rely on information obtained directly from investee companies or third-party providers. Until the RTS is adopted, disclosure can be supplemented by a description of how the proportion of the taxonomy-aligned investments is calculated.

SFDR and Taxonomy Regulation application timelines

Entity-level principal adverse impact statement

The Joint Statement explains that while the requirement under article 4 SFDR for FMPs to disclose product level compliance with the principal adverse impact of the investment decisions on sustainability factors is applicable as of 10 March 2021 (with the exemption of entities referred to in article 4(3) and 4(4) SFDR which had to comply as of 30 June 2021), the additional disclosures specified by the entity-level principal adverse sustainability impacts statement set out in the RTS will apply from 1 January 2023. The draft RTS provides that disclosure must be made by 30 June each year with a reference period of the previous calendar year. Since the RTS is expected to enter into force on 1 January 2023, FMPs should publish their principal adverse sustainability impacts statement by 30 June 2023 with respect to calendar year 2022.
Product level periodic reporting
The periodical reporting under article 11(2) SFDR applicable to FMPs which provide article 8 and 9 SFDR products applies as of 10 March 2021. Periodical reports drawn up by FMPs for 2022 should be made in accordance with relevant sectoral legislation and level 1 requirements provided in SFDR. The additional details for periodic reporting laid down by Chapter V RTS are expected to enter into force together with the RTS, on 1 January 2023. Nonetheless, ESAs encourage FMPs to use the draft RTS as a point of reference for periodic reports issued between 1 January 2022 and 31 December 2022.

Implementation guidance

The Joint Statement includes a table summarising disclosure obligations under the Taxonomy Regulation and SFDR together with implementation deadlines.

Download the TR and SFDR disclosures obligations table>

How Eversheds Sutherland can help

Our international Asset Management team have a proven track record assisting businesses with their regulatory and compliance requirements including extensive experience with product disclosure and categorisation exercises. In particular we can assist with carrying out a “gap analysis” against your existing product disclosures in order to fully align your product disclosures with the SFDR and Taxonomy Regulation requirements. Our practice works with key industry bodies in the ESG space across the EU and UK to ensure we stay at the forefront of regulatory developments and understand the impacts such regulation is likely to have on the sector. For more information, please get in touch with a member of the team.