ESAs Suggest Modifications to SFDR Rules
The European Insurance and Occupational Pensions Authority (EIOPA), the European Securities and Markets Authority (ESMA), and the European Banking Authority (EBA) jointly released a consultation paper suggesting amendments to the Delegated Regulation of the Sustainable Finance Disclosure Regulation (SFDR).
The proposed changes include an expanded set of social indicators and streamlined templates for financial products, among other recommendations.
The ESAs aim to address issues that have arisen since the introduction of the SFDR by proposing changes to the disclosure framework. The proposed modifications seek to:
Expand the list of universal social indicators to include earnings from non-cooperative tax jurisdictions and interference in the formation of trade unions for the disclosure of the principal adverse impacts of investment decisions on the environment and society.
Refine the content of other indicators for adverse impacts and their respective definitions, methodologies, and presentation of information derived directly from investee companies, sovereigns, supranationals or real estate assets.
Introduce product disclosures for decarbonisation targets, including intermediate targets, level of ambition, and how the target will be achieved.
The authorities suggest additional technical modifications to the Delegated Regulation of the SFDR. These modifications involve enhancing transparency regarding how sustainable investments avoid causing significant harm to the environment and society. They also include streamlining the templates for pre-contractual and periodic disclosures of financial products.
Furthermore, there will be other technical adjustments, such as changes to the treatment of derivatives, the definition of equivalent information, and provisions for financial products that have underlying investment options.
On April 28, 2022, the European Commission granted the Joint Committee of the ESAs a mandate to review and modify the Regulatory Technical Standards stipulated in the SFDR Delegated Regulation. In October 2022, the ESAs notified the Commission that they would provide a final report within the given mandate's deadline, which is the end of October 2023.
The ESAs have opened a consultation for feedback until July 4, 2023, which can be provided via an online response form. During the consultation period, the authorities will jointly conduct a public hearing and targeted consumer testing. After receiving and evaluating the comments, the ESAs will prepare a final report and submit it to the European Commission.
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