Final report on draft regulatory technical standards and ESA’s supervisory statement – key takeaways

On Thursday 4 February 2021, the European Supervisory Authorities (“ESAs”) published updated draft regulatory technical standards (“Draft RTS”), which are intended to supplement the Sustainable Finance Disclosure Regulation (“SFDR”). If approved, these will come into force on 1 January 2022. 

The Draft RTS go some way trying to address industry feedback – particularly welcome is the reduction in the number of mandatory principal adverse sustainability indicators (“PASI”) that firms are expected to monitor and report against. In addition, the new mandatory templates for pre-contractual and periodic reporting disclosures allow for consistency in reporting across financial products. As we will discuss, however some of the key scoping / categorisation questions still remain unanswered and that will need to be clarified going forward. The European Commission (“Commission”) has three months to decide whether to approve the Draft RTS, and is due to issue further guidance on scoping (e.g. the distinction between Article 6 versus 8 products and application to Article 42 non-EU AIFMs). 

Additionally on 25 February 2021, the ESAs published a joint supervisory statement on the effective and consistent application and national supervision of SFDR (“Supervisory Statement”) in which the ESAs have unhelpfully recommended that the Draft RTS should be used as a reference point by firms and national competent authorities in the interim period between 10 March 2021 and the final RTS coming into effect. This is an unhelpful suggestion, noting that the Draft RTS has still not been finalised, and seems to depart from the more principles based approach indicated by the European Commission in its delay letter for this interim period. However, we don’t think this suggestion imposes a requirement for firms to pre-comply with the Draft RTS (as the document goes on to state that firms should use the interim period to prepare for compliance with the RTS from 1 January 2022) – but it may encourage certain competent authorities to be more hard-line in their supervisory approach during this interim period. The Supervisory Statement also includes a timeline of key SFDR deadlines and unhelpfully states that for financial products that don't consider PASIs, firms must publish the SFDR Article 7(2) statement by 10 March 2021. Although the CSSF had previously suggested this interpretation, this was not a commonly held view (noting that Article 7(1) indicates that product level PASI statements must be made by 30 December 2022) and does not give firms much time to update their product documentation.