Written by Ciara Davies

The ESA has published a consultation paper setting out the proposed Regulatory Technical Standards (RTS) on the content, methodologies and presentation of disclosures under the SFDR.

The purpose of the consultation is to seek input on the creation of RTS that require financial market participants and financial advisers to disclose specific information on their approaches to the integration of sustainability risks and the consideration of adverse sustainability impacts in any substainability-focussed investment activities.

The draft RTS on which comments are sought cover:

  • the details of the presentation and content of the information in relation to the principle of ‘do not significantly harm’ as set out in Article 2(17) of the SFDR.
  • a statement on an entity’s website of a statement on the due diligence policy in respect of the adverse impact of investment decisions on sustainability factors in relation to climate and other environment-related impacts (Article 4(6)).
  • pre-contractual information on how a product with environmental or social characteristics meet those characteristics and if an index has been designated as a reference benchmark, whether and how that index is consistent with those characteristics (Article 8).
  • pre-contractual information to show, where a product has sustainable investment objectives and a) has a designated index as a reference benchmark, how that index is aligned with the sustainable investment objective and an explanation as to why and how that designated index aligned with the objective differs from a broad market index (Article 9(1) SFDR); b) if no index has been designated as a reference benchmark, an explanation on how that objective is to be attained (Article 9(2) SFDR).
  • Information on an entity’s website to describe the environmental or social characteristics of financial products or the sustainable investment; the methodologies used; the pre-contractual information referred to in Articles 8 and 9; and the periodic reports referred to in Article 11.
  • information in periodic reports according to sectoral legislation specifying (a) the extent to which products with environmental and/or social characteristics meet those characteristics, and (b) for products with sustainable investment objectives and products which objective is a reduction in carbon emissions: (i) the overall sustainability-related impact of the product by means of relevant sustainability indicators and (ii) where an index has been designated as a reference benchmark, a comparison between the overall impact of the financial product with the designated index and a broad market index through sustainability indicators (Article 11 of the SFDR).

The ESA also asks for comments on the preliminary impact assessment of the RTS. The ESA has provided a template that can be used to provide responses.

Comments on the consultation paper should be sent using the response form on the ESMA website by 1 September 2020.