Sustainable Finance Disclosures Regulation
A deadline extension, but don't delay
By Ann Shiels, Knowledge Lawyer, A&L Goodbody
Update: Following on from Ann’s article pubclished in the Q4 issue of The ESG Factor Magazine, discussing the SFDR deadline extension to July 1st 2022, the European Commission has further extended this deadline to January 1st 2023.
In the letter, John Berrigan, Deputy Director-General of the European Commission, explained the reason behind the latest delay of the application of the regional tecnical standards (RTS).
“Due to the length and technical detail of those 13 regulatory technical standards, the time of the submissions to the Commission, and to facilitate the smooth implementation of the delegated act by product manufacturers, financial advisers and supervisors, we would defer the date of application of the delegated act to 1 January 2023.”
While the timeline has been further delayed, from July 1st 2022 to January 1st 2023, Ann’s key message of using this time wisely in preparing for the SFDR requirements remains an important one.
Original article which featured in the Q4 issue of The ESG Factor Magazine
The Sustainable Finance Disclosures Regulation (SFDR) is playing a key role in shaping sustainable finance, but the implementation process is a gradual one, allowing time for input from key stakeholders. Given the length and complexity of the regulatory technical standards (RTS) under SFDR, the European Commission has deferred the next phase of SFDR disclosure requirements until 1 July 2022.
European Commission provides answers
The disclosure requirements under SFDR apply to financial market participants, financial advisers and financial products. The regulatory technical standards under SFDR – intended to offer guidance on implementation of the requirements – prompted as many questions as answers.
The European Commission (EC) published answers to the questions raised on SFDR dealing with topics including:
- Classification of Article 8 and Article 9 products
- Comply-and-explain mechanism and 500 employee threshold for PAI statement
- Applicability to non-EU AIFMs and registered AIFMs
The clarification process is not complete, but the answers provided will help. Most importantly, the recognition by the European Commission of the complexity of the technical standards has been met with a timeline extension for the next phase of implementation.
Revised SFDR timeline
The EC published a letter dated 8 July 2021 confirming that because of the length and technical detail of the RTS under SFDR, the 1 January 2022 implementation date of the next phase of SFDR disclosure requirements will be deferred to 1 July 2022. The first phase of SFDR RTS disclosure requirements under the EU Taxonomy due on 1 January 2022 will be bundled into this update and also deferred to 1 July 2022. This brings clarity that detailed RTS requirements will not be effective on 1 January 2022 for the first phase EU Taxonomy related disclosures but – for the time being – uncertainty about what any level 1 first phase disclosures under the Taxonomy Regulation on 1 January 2022 might look like.
The revised timeline is a positive development, as long as all stakeholders use this time wisely.
- First of all, it is a welcome reprieve for UCITS, AIFs and their management companies, providing time to understand the disclosure requirements and apply them authentically and accurately. This will be crucial to ensuring concerns over greenwashing – mischaracterisation of how sustainability and ESG is incorporated – are addressed.
- The deferral will also give time to consolidate the RTS requirements into a single rulebook which should simplify tracking the various requirements through SFDR and the Taxonomy Regulation and further assist application of, and compliance with, the rules.
Next Steps
We await the final full complement of RTS under SFDR to complete the sustainability related disclosure analysis for UCITS, AIFs and their management companies. The EC’s renewed strategy for sustainable finance released in July 2021 stated that it will look further at article 8 categorisation, and we will stay tuned for updates on that.
In the meantime, we recommend that planning should continue for the next phase of SFDR compliance for UCITS management companies, AIFMs and their funds. At A&L Goodbody, our Asset Management & Investment Funds team is committed to helping our clients on this journey, providing the clarity needed to ensure accurate and authentic implementation of the disclosure requirements.
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