The impact of SFDR on what firms must disclose about their products

Over the past year, there has been considerable focus on the Sustainable Finance Disclosure Regulation (SFDR) this year.

The SFDR will require companies to make disclosures in a number of different situations, in varying formats, with staggered effective dates, and pursuant to numerous legislative and regulatory texts.

In a recent post, Compliance Solutions Strategies narrowed its focus to SFDR Article 10, which requires market players to publish on their websites sustainability information about their article 8 and article 9 financial products.

CSS said, “As investment managers and others familiar with SFDR are by now aware, those are funds that have certain ESG characteristics (Art. 8 or “light green” products) or else that make ESG attributes their objective (Art. 9 or “dark green” products).  These products are subject to ESG disclosure requirements within pre-contractual statements (e.g. prospectus) and periodic reports (e.g. annual report), according to proposed regulatory technical standards (RTS) and prescribed templates.”

The RTS also underlined what companies must disclose about those products on their website. These include a summary, no sustainable investment objective, environmental or social characteristics of the financial product, investment strategy, proportion of investments, monitoring of environmental or social characteristics, methodologies, data sources and processing, due diligence, limitations to methodologies and data, engagement policies and where an index is designated as a reference benchmark for the purpose of attaining the environmental or social characteristics promoted by the financial product, ‘Designated reference benchmark’

For article 9, this is broadly similar, besides a need for disclosures on the sustainable investment objective of the financial product, the monitoring of sustainable investment objectives and attainment of the sustainable investment objective.

CSS remarked, “Currently, during the period of “Level 1” Article 10 compliance (since 10 March 2021), firms are posting their disclosures under a variety of approaches.  Some are addressing Article 10 in a general sense (describing for example their assessment methodologies, and their products’ sustainability features), while remaining cognizant that the text of Article 10 requires disclosure “in a way that is accurate, fair, clear, not misleading, simple and concise and in a prominent easily accessible area of the website”.

“Other firms are conforming more closely to the RTS-mandated topics, clearly delineating and addressing each of them.  Website placement also varies: some disclosures are made accessible on a financial products web page (i.e. list of funds), others on a sustainability or ESG page, and still others on a page dedicated to disclosures or reporting.  During the remainder of 2022, and during the RTS effective period in 2023, it’s likely that more firms will coalesce toward a more uniform type of Article 10 disclosure, adhering to the RTS requirements.”

Read the full post here.

Enjoying the stories?

Subscribe to our daily FinTech newsletter and get the latest industry news & research


The following investor(s) were tagged in this article.