ESA’s further enhance sustainability disclosures in finance

December 6, 2023

The European Supervisory Authorities (ESA’s) have released their final report, introducing amendments to the draft RTS that supplement the SFDR.

These amendments include the introduction of new social indicators and a refined framework for disclosing the principal adverse impacts of investment decisions on the environment and society. This move marks a notable advancement in the integration of sustainability considerations within the financial sector.

A key focus of the amendments is the introduction of product disclosures pertaining to “greenhouse gas emissions reduction” targets. This addition aligns with global efforts to address climate change and increases the transparency of financial products in terms of their environmental impact.

Further technical revisions proposed by the ESAs include improvements to how sustainable investments are reported to “Do No Significant Harm” (DNSH) to environmental and societal factors. The ESAs are also streamlining the pre-contractual and periodic disclosure templates for financial products. This simplification is aimed at making it easier for consumers and investors to understand the sustainability credentials of financial products.

The draft RTS, now under review by the European Commission, is expected to be endorsed within three months. These standards will be applied independently of the comprehensive SFDR assessment announced by the European Commission in September 2023.

The amendments are a result of the ESAs’ extended deadline, which allowed for a more thorough review and public consultation. This extension was necessary to ensure that the revised standards comprehensively cover the complexities of sustainable investments and their impact.

The Joint Committee of the ESAs received a mandate from the European Commission on 28 April 2022, with a 12-month deadline to deliver the amended RTS. The need for an extension highlights the significance and complexity of integrating sustainability into financial sector disclosures.

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