Joint Regulatory Technical Standards on ESG disclosure standards for financial market participants

These Joint Committee draft Regulatory Technical Standards (RTS) on ESG disclosures have been developed by the three European Supervisory Authorities (EBA, EIOPA and ESMA) under the EU Regulation on sustainability-related disclosures in the financial services sector Regulation (SFDR), which aims to strengthen protection for end-investors and improve the disclosures that they receive from a broad range of financial market participants and financial advisers, as well as regarding financial products.

rts JC 2023 09 (REVISED) - UNDER DEVELOPMENT

Joint Committee Consultation paper on review of SFDR Delegated Regulation regarding PAI and financial product disclosures

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Consultation on review of SFDR Delegated Regulation regarding PAI and financial product disclosures

rts JC 2021 03 - ADOPTED AND PUBLISHED IN THE OFFICIAL JOURNAL

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News

ESAs propose amendments to extend and simplify sustainability disclosures

12 April 2023

The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have today published a Consultation Paper with amendments to the Delegated Regulation of the Sustainable Finance Disclosure Regulation (SFDR).

The ESAs are proposing changes to the disclosure framework to address issues that have emerged since the introduction of SFDR. The authorities seek feedback on the amendments that envisage:

extending the list of universal social indicators for the disclosure of the principal adverse impacts of investment decisions on the environment and society, such as earnings from non-cooperative tax jurisdictions or interference in the formation of trade unions;
refining the content of other indicators for adverse impacts and their respective definitions, applicable methodologies, formulae for calculation as well as the presentation of the share of information derived directly from investee companies, sovereigns, supranationals or real estate assets; and
adding product disclosures regarding decarbonisation targets, including intermediate targets, the level of ambition and how the target will be achieved.

Moreover, the ESAs propose further technical revisions to the SFDR Delegated Regulation by:

improving the disclosures on how sustainable investments “do not significantly harm” the environment and society;
simplifying pre-contractual and periodic disclosure templates for financial products; and
making other technical adjustments concerning, among others, the treatment of derivatives, the definition of equivalent information, and provisions for financial products with underlying investment options.

Background

The Joint Committee of the ESAs received a mandate from the European Commission on 28 April 2022 to review and revise the Regulatory Technical Standards laid down in the SFDR Delegated Regulation. The ESAs informed the Commission in October 2022 that they will deliver the Final Report under the mandate by the end of October 2023.

Next steps

The ESAs welcome comments to the Consultation Paper until 4 July 2023 via the response form.

The ESAs will organise a joint public hearing and targeted consumer testing during the consultation period. After considering the comments received, the ESAs will prepare a Final Report and submit it to the European Commission.

ESAs launch survey on environmental and/or social financial product templates

21 September 2020

The European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) published today a survey seeking public feedback on presentational aspects of product templates, pursuant to Article 8(3), Article 9(5) and Article 11(4) of Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services (SFDR). The survey is open for comments until 16 October 2020.

The ESAs propose to standardise the disclosure of information for financial products that promote environmental and/or social characteristics or have a sustainable objective. The use of such mandatory templates will improve comparability of different financial products in different EU Member States and are intended to be included in existing disclosures provided by Alternative investment fund managers (AIFMs), Undertakings for Collective Investment in Transferable Securities (UCITSs), insurance undertakings, Institutions for Occupational Retirement Provision (IORPs) or providers of pan-European Personal Pensions Products (PEPPs).

In particular, the ESAs are inviting stakeholders to comment on the layout of the templates, which reflects the text of the draft Regulatory Technical Standards (RTS) from the recent public consultation on the SFDR that ran from 23 April until 1 September 2020.

The final content of the templates is subject to the outcome of a concurrent consumer testing exercise and the ESAs’ final report on the draft RTS under SFDR.

Press Release

ESAs provide clarifications on key areas of the RTS under SFDR

02 June 2022

The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) today published a statement providing clarifications on the draft regulatory technical standards (RTS) issued under the Sustainable Finance Disclosure Regulation (SFDR), which include the financial product disclosures under the Taxonomy Regulation.

Today’s statement provides clarification on key areas of the SFDR disclosures, including:

use of sustainability indicators;
principal adverse impact (PAI) disclosures;
financial product disclosures;
direct and indirect investments;
taxonomy-related financial product disclosures;
“do not significantly harm” (DNSH) disclosures; and
disclosures for products with investment options

The statement is part of the ESAs’ on-going efforts to promote a better understanding of the disclosures required under the technical standards of the SFDR ahead of the planned application of the rules on 1 January 2023, as laid out in the Delegated Regulation adopted by the European Commission on 6 April 2022.

Next steps

The ESAs will continue to promote a better understanding of the RTS as adopted in the Delegated Regulation under the SFDR through practical application Q&As, after the publication of the Delegated Regulation in the Official Journal.

ESAs issue updated supervisory statement on the application of the Sustainable Finance Disclosure Regulation

25 March 2022

The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have today updated their joint supervisory statement on the application of the Sustainable Finance Disclosure Regulation (SFDR). This includes a new timeline, expectations about the explicit quantification of the product disclosures under Article 5 and 6 of the Taxonomy Regulation, and the use of estimates.

The supervisory statement aims to promote an effective and consistent application and national supervision of the SFDR, thus creating a level playing field and protecting investors.

The ESAs recommend that national competent authorities and market participants use the current interim period from 10 March 2021 until 1 January 2023 to prepare for the application of the forthcoming Commission Delegated Regulation containing the Regulatory Technical Standards (RTS) while also applying the relevant measures of SFDR and the Taxonomy Regulation according to the relevant application dates outlined in the supervisory statement.

Disclosures under Article 5 and 6 of the Taxonomy Regulation

The ESAs clarify that, under Article 5 and 6 of the Taxonomy Regulation, the supervisory expectation for disclosures during the interim period is that financial market participants should provide an explicit quantification, through the numerical disclosure of the percentage, of the extent to which investments underlying the financial product are taxonomy-aligned.

In addition, while estimates should not be used, where information is not readily available from investee companies’ public disclosures, financial market participants may rely on equivalent information on taxonomy-alignment obtained directly from investee companies or from third party providers.

This updated statement replaces the initial joint supervisory statement, which was released in February 2021.

Next steps

The European Commission sent on 8 July 2021 a letter to the European Parliament and Council announcing that it intends to bundle all 13 RTS under SFDR into a single delegated act and to defer the application of 1 January 2022 by six months to 1 July 2022. The Commission sent another letter on 25 November 2021 announcing that the application date of the RTS would be 1 January 2023.

The European Commission is required to endorse the ESAs draft RTS within 3 months of the publication. Subject to the non-objection by the European Parliament and Council of the European Union – within 3 months following the Commission’s endorsement – the RTS will be adopted by the Commission by means of a delegated regulation.

The three European Supervisory Authorities publish Final Report and draft RTS on disclosures under SFDR

04 February 2021

The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) delivered today to the European Commission (EC) the Final Report, including the draft Regulatory Technical Standards (RTS), on the content, methodologies and presentation of disclosures under the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR).

The proposed RTS aim to strengthen protection for end-investors by improving Environmental, Social and Governance (ESG) disclosures to end-investors on the principal adverse impacts of investment decisions and on the sustainability features of a wide range of financial products. This will help to respond to investor demands for sustainable products and reduce the risk of greenwashing.

Steven Maijoor, Chair of the ESAs Joint Committee, said:

The significant set of rules issued today provide a strong basis to improve ESG reporting and combat greenwashing. They strike a careful balance between achieving common disclosures across the range of financial products covered by the SFDR and recognising that they will be included in documents that are very diverse in length and complexity. The ESAs have listened to the consultation feedback from stakeholders and have adjusted the proposed disclosures.

Main proposals

Entity-level principal adverse impact disclosures

The principal adverse impacts that investment decisions have on sustainability factors should be disclosed on the entity’s website. The disclosure should take the form of a statement showing how investments adversely impact indicators in relation to

climate and environment; and
social and employee matters, respect for human rights, anti-corruption and anti-bribery aspects.

The ESAs have updated the list of indicators for principal adverse impacts. The principal adverse impact reporting in the SFDR is based on the principle of proportionality – for companies with fewer than 500 employees, the entity-level principal adverse impact reporting applies on a comply-or-explain basis.

Product level disclosures

The sustainability characteristics or objectives of financial products are to be disclosed in an annex to the respective sectoral pre-contractual and periodic documentation in mandatory templates and on providers’ websites.

Proposals relate to:

Pre-contractual information should include details on how a product with environmental or social characteristics/ sustainable investment objective/ meets those/ that characteristics/ objective.
Information on the entity’s website on the environmental or social characteristics of financial products/ sustainable investment objective of the product and the methodologies used.
Information in periodic reports specifying: (I) the extent to which products met the environmental and/or social characteristics by means of relevant indicators; and (II) for products with sustainable investment objectives, including products whose objective is a reduction in carbon emissions.
Information in relation to the ‘do not significantly harm’ principle: specifying the details for how sustainable investments do not significantly harm sustainable investment objectives.

As the ESAs were not empowered to differentiate the disclosures between financial market participants and products, the RTS contain a harmonised approach to all financial products. Therefore, the same disclosures are required for a very broad range of products attached as annexes to existing sectoral disclosure documents that have different levels of granularity and length.

Next steps

The EC is expected to endorse the RTS within 3 months of their publication.

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 according to the EC letter to the ESAs. The ESAs have proposed in these draft RTS that the application date of the RTS should be 1 January 2022.

The ESAs plan to issue a public supervisory statement before the application date of SFDR in order to achieve an effective and consistent application of the SFDR’s requirements and consistent national supervision of the SFDR.

The ESAs will also publish a consultation on taxonomy-related product disclosures under the Taxonomy Regulation which amends the empowerments in Articles 8(4), 9(6) and 11(5) of the SFDR.

Background

On 9 December 2019, the SFDR was published in the Official Journal. The Taxonomy Regulation was published in the Official Journal on 22 June 2020.

The Final Report takes into account the feedback received on the consultation paper launched in April 2020.

ESAs consult on Environmental, Social and Governance disclosure rules

23 April 2020

The three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) have today issued a Consultation Paper seeking input on proposed environmental, social and governance (ESG) disclosure standards for financial market participants, advisers and products.

These standards have been developed under the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR), aiming to:

strengthen protection for end-investors;
improve the disclosures to investors from a broad range of financial market participants and financial advisers; and
improve the disclosures to investors regarding financial products.

The SFDR empowers the ESAs to develop Regulatory Technical Standards (RTS) on the content, methodology and presentation of ESG disclosures both at entity level and at product level. In addition, the consultation paper contains proposals under the recently agreed Regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation), on the do not significantly harm (DNSH) principle.

Entity-level principal adverse impact disclosures
The principal adverse impacts that investment decisions have on sustainability factors should be disclosed on the website of the entity, and the proposals set out rules for how this public disclosure should be done. The disclosure should take the form of a statement on due diligence policies with respect to the adverse impacts of investment decisions on sustainability factors, showing how investments adversely impact indicators in relation to
- climate and the environment; and
- social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.

The ESAs have included draft indicators for adverse impacts, based on consultations with the Joint Research Centre of the European Commission and the European Environment Agency.

Product level ESG disclosures
The sustainability characteristics or objectives of financial products should be disclosed in their pre-contractual and periodic documentation and on their website. The proposals included in the draft RTS indicate the rules for how this disclosure should be carried out, ensuring transparency to investors regarding how products meet their sustainability characteristics or objectives. They also set out the additional disclosures that should be provided by products that have designated an index as a reference benchmark.

Finally, the product level proposals set out suggested provisions for disclosing how a product based on sustainable investments complies with the DNSH principle.

Next steps
The ESAs welcome feedback to this consultation by 1 September 2020. Following the close of the consultation the draft RTS will be finalised and submitted to the European Commission.

Legal basis and background

On 22 March 2019, the Council published the text of the political agreement on the proposed regulation on sustainability-related disclosures in the financial services sector (SFDR). The Regulation was published in the Official Journal on 9 December 2019 as Regulation (EU) 2019/2088.

On 18 December 2019 the Council and European Parliament announced that they had reached a political agreement on a Regulation on the establishment of a framework to facilitate sustainable investment. On 15 April the Council adopted the Regulation paving the way for adoption in the European Parliament and subsequent publication in the Official Journal. This regulation sets out additional empowerments in SFDR for the ESAs to develop technical standards on disclosure.

Consultation Papers

Joint Consultation Paper on ESG disclosures standards for financial market participants

Summary 23/04/2020

These standards have been developed under the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR), aiming to:

strengthen protection for end-investors;
improve the disclosures to investors from a broad range of financial market participants and financial advisers; and
improve the disclosures to investors regarding financial products.

The ESAs have included draft indicators for adverse impacts, based on consultations with the Joint Research Centre of the European Commission and the European Environment Agency.

Finally, the product level proposals set out suggested provisions for disclosing how a product based on sustainable investments complies with the DNSH principle.

Next steps
The ESAs welcome feedback to this consultation by 1 September 2020. Following the close of the consultation the draft RTS will be finalised and submitted to the European Commission.

Legal basis and background

Send your comments

Deadline: 01/09/2020