SFDR/Sustainable Finance Update
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1. Postponement of Level 2 SFDR/Taxonomy related RTS
In a letter dated 8 July 2021 , the EU Commission
indicated that it will defer the application date of the SFDR level
2 Regulatory Technical Standards (“RTS“)
by six months from 1 January 2022 to 1 July 2022.
One of the reasons of the delay is the fact that the current
draft SFDR level 2 RTS needs to be amended in order to include
additional requirements in relation to activities that contribute
to/promote climate change mitigation and/or climate change
adaptation as defined in the Taxonomy Regulation.
The EU Commission plans to bundle all SFDR/Taxonomy related
level 2 RTS into one single delegated act that it will submit to
the EU Parliament and the Council for approval in the coming
2. Publication of Taxonomy related delegated acts
Also in relation to the Taxonomy Regulation:
- The delegated act which specifies the technical screening
criteria for determining the conditions under which an economic
activity qualifies as contributing substantially to (i) climate
change mitigation or (ii) climate change adaptation and for
determining whether that economic activity causes no significant
harm to any of the other environmental objectives, was adopted on 4
June 2021 (Climate Delegated Act and its Annex 1 and Annex 2 ).
- Article 8(1) Taxonomy Regulation provides that certain large
undertakings that are required to publish non-financial information
under the the Non-Financial Reporting Directive
(“NFRD“) should disclose information to
the public on how and to what extent their activities are
associated with environmentally sustainable economic activities, as
defined under the EU Taxonomy legislation. On 6 July 2021, the delegated act on the information to be
disclosed was adopted.
3. EU Commission FAQ on the application of SFDR
At the end July 2021, the EU Commission published an FAQ on the application on SFDR which includes
some answers to the priority questions raised by the ESAs in
January 2021. The answers provide clarification on:
- the application of SFDR to registered AIFMs and to non-EU
- the meaning of “promotion” in the context of
financial products promoting environmental or social
characteristics (Article 8 of SFDR);
- clarifications as regards financial products with a sustainable
investment objective (Article 9 SFDR);
- the application of SFDR product rules to portfolios managed on
a discretionary basis and dedicated funds.
4. Amendment of UCITS, AIFM and MiFID level 2 measures to
integrate sustainability risks
On 2 August 2021, the delegated acts amending UCITS, AIFM and MiFID
level 2 measures to integrate sustainability risks, factors and
preferences were published in the OJEU.
The objective is to ensure that financial firms, e.g. advisers,
asset managers (MiFID firms / AIFMs / UCITS management companies)
include sustainability risks and factors in their procedures. The
existing MiFID II suitability assessment is also completed with
questions on clients’ sustainability preferences.
The amendments to UCITS, AIFMs and MiFID II sustainability
preferences will become applicable in August 2022 and the
amendments to MiFID II product governance rules start to apply in
5. A new phase in the EU’s sustainable finance
On 6 July 2021, the Commission published its new Strategy for Financing the Transition to a
Sustainable Economy (“New Strategy“)
, which seeks to further implement its 2018 action plan for
sustainable finance (as part of the European Green Deal).
The New Strategy includes six specific action plans within the
four main policy areas of which the following two may be of
particular interest for the asset management industry:
- Proposal for minimum sustainability criteria, or a combination
of criteria, for financial products in scope of Article 8 SFDR in
order to guarantee minimum sustainability performance of such
products. It should be noted that the Commission does not provide
any further details on what these minimum sustainability criteria
would consist of nor by when it would seek to implement this.
- Consideration of the merits of further changes to enable
financial markets participants and financial advisers to
systematically consider the positive and negative sustainability
impacts of their investment decisions and advices. This would
concern both AIFMs and UCITS management companies and would in
essence impose the double materiality requirement on them which is
not currently foreseen by SFDR.
The Commission also announced its proposal for a Regulation on European green bond standards
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