The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have delivered to the European Commission (EC) their Final Report with draft Regulatory Technical Standards (RTS) regarding disclosures under the Sustainable Finance Disclosure Regulation (SFDR) as amended by the Regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation). The disclosures relate to financial products that make sustainable investments contributing to environmental objectives.

The draft RTS aim to:

• provide disclosures to end investors regarding the investments of financial products in environmentally sustainable economic activities, providing them with comparable information to make informed investment choices; and
• establish a single rulebook for sustainability disclosures under the SFDR and the Taxonomy Regulation.

Main proposals

The Report contains the following proposals:

1. For products under Articles 5 and 6 of the Taxonomy Regulation

• inclusion of pre-contractual and periodic disclosures that identify the environmental objectives to which the product contributes and show how and to what extent the product’s investments are aligned with the EU Taxonomy
• for measuring how and to what extent activities funded by the product are aligned with the EU taxonomy, the proposals consist of two elements:
  • two graphs showing the taxonomy-alignment of investments of the financial product based on a specified methodology that calculates that alignment; and
  • an assurance provided by an auditor or a review by a third party that the economic activities funded by the product that qualify as environmentally sustainable are compliant with the detailed criteria of the Taxonomy Regulation.

2. For pre-contractual and periodic disclosures

• inclusion of annexes with amendments to the mandatory templates for financial products that promote environmental and/or social characteristics or have a sustainable investment objective as defined in the SFDR, so that they include additional disclosures for Article 5 and Article 6 products under the Taxonomy Regulation.

Treatment of Sovereign Bonds

Regarding the specific issue of the treatment of sovereign bonds in the representation of the taxonomy-alignment of investments, the ESAs decided to require the disclosure of the taxonomy-alignment of investments in two ways: one including sovereign exposures and one excluding sovereign exposures from the calculation.

To protect investors from the risk of greenwashing, the draft RTS contain a graph which includes all the investments of the financial product in the calculation. As there is no appropriate methodology to assess the taxonomy-alignment of sovereign bonds, the ESAs added a second graph showing the taxonomy-alignment of the financial product where all sovereign exposures are excluded from the calculation.

Next steps

The EC will scrutinise the draft RTS and decide whether to endorse them within 3 months of their publication. The Commission has informed the European Parliament and Council that it intends to incorporate all the SFDR RTS, meaning both the original ones submitted to the Commission in February 2021 as well as the ones covered in this Final report, in one instrument.