The CSSF would like to bring to the attention of financial market participants and financial advisers the Supervisory Statement of the Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA – hereinafter referred to as “ESAs”) on the application of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (“SFDR”) within the period from 10 March 2021 to the application date of the Regulatory Technical Standards (“RTS”) on the content, methodologies and presentation of sustainability-related disclosures. The Supervisory Statement has been published on 25 February 2021.
SFDR entry into application without RTS
The ESAs remind that, while financial market participants and financial advisers are required to apply most of the provisions on sustainability-related disclosures laid down in the SFDR from 10 March 2021, the application of the RTS will be delayed to a later date 1. This has been clarified by the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union, in a letter sent to the ESAs on 20 October 2020 on the application of the SFDR.
In the Final Report including the draft RTS published on 4 February 2021, the ESAs proposed to delay the application date of the RTS to 1 January 2022, in order to provide financial market participants and financial advisers with sufficient time to gather the information necessary and adjust their practices to apply the specific requirements of the RTS, and in order to provide for the alignment of the application of the RTS with the application of the amendments in the Taxonomy Regulation (Regulation (EU) 2020/852, hereinafter referred to as “TR”) to the SFDR, as well as the application of periodic reporting in the SFDR.
The ESAs advance that SFDR RTS will be amended by forthcoming RTS under new empowerments added to the SFDR by the TR, which will include additional disclosures for investments in Taxonomy-aligned activities.
SFDR areas of uncertainty
The CSSF awaits the answer from the European Commission to the letter published by the ESAs on 7 January 2021 in respect of a number of several important areas of uncertainty in the interpretation of the SFDR. These “Priority issues relating to SFDR application” cover:
i) the application of SFDR to non-EU Alternative Investment Fund Managers (AIFMs) and registered AIFMs;
ii) the application of the 500-employee threshold for principal adverse impact reporting on parent undertakings of a large group;
iii) the meaning of “promotion” in the context of products promoting environmental or social characteristics;
iv) the application of Article 9 of SFDR; and
v) the application of SFDR product rules to portfolios and dedicated funds.
The ESA’s warned that “draft RTS must still be adopted by the European Commission and that the European Parliament or the Council may object to the draft RTS within a period of three months from the date of notification of the RTS adopted by the Commission. Therefore, the final RTS may be different to the draft RTS in the ESAs’ final report”.
Nevertheless, the CSSF recommends financial market participants and financial advisers to use the interim period from 10 March 2021 until 1 January 2022 to prepare for the application of the RTS.
Guidance during interim period
In line with the ESAs’ Supervisory Statement, the CSSF encourages financial market participants and financial advisers to use the draft RTS as a reference for the purposes of applying the provisions of Articles 2a, 4, 8, 9, and 10 of the SFDR in the interim period until RTS are adopted by the European Commission.
The ESAs detail in the Annex of its Supervisory Statement the application timeline of specific provisions of the SFDR, the TR and the related RTS, and provide additional interpretation on entity-level principal adverse impact statement application and additional recommendation to the Commission to specify that Chapter V of the RTS applies to periodic reports with reference periods starting from 1 January 2022.
Application timeline for entity-level principal adverse impact statement
Where a financial market participant publishes the principal adverse sustainability impacts statement in accordance with the RTS for the first time, the RTS does not require the disclosure of information relating to a previous reference period (the section in Table 1 of Annex I “Description of principal adverse sustainability impacts”). Information that must be published in the first statement not related to reference periods include the following sections in Table 1 of Annex I: “Summary”, “Description of policies to identify and prioritise adverse sustainability impacts”, “Engagement policies” and “References to international standards”.
This means that the earliest information relating to a reference period to be disclosed in accordance with the RTS would not be made until 2023 in respect of a reference period relating to 2022.
Application timeline for products’ periodic reporting
The ESAs have drawn the Commission’s attention to the potential for the application date of 1 January 2022 to be burdensome for financial market participants in relation to the detailed content and presentation requirements for sustainability-related information in periodic reports set out in Chapter V of the RTS. The ESAs note that the majority of those periodic reports have annual reference periods.
In view of this, in case the RTS are not adopted sufficiently early to allow at least six months to enable financial market participants to gather the necessary information and adapt their practices to comply with Chapter V of the RTS, the ESAs recommend that the Commission specifies that Chapter V of the RTS applies to periodic reports with reference periods starting from 1 January 2022.
In that way, the requirements of Chapter V of the RTS would only apply to periodic reports published in 2022 in relation to reference periods starting from 1 January 2022, while the periodic reports published in 2022 in relation to reference periods starting before 1 January 2022 would apply the high level and principle-based requirements in Article 11(1) of the SFDR.
1 The CSSF published a communication in respect such letter on 6 November 2020.