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In this briefing, we summarise the latest developments related to Sustainable Finance Disclosure Regulation (SFDR), its supplementing Regulatory Technical Standards (RTS) and the Taxonomy Regulation (TR). This briefing is regularly updated to reflect the most recent regulatory changes. As of 31 January, these include:
the European Supervisory Authorities' (ESAs) and the Luxembourg Financial Sector Supervisory Authority's (CSSF) guidance on SFDR
the European Securities and Markets Authority's (ESMA) consultation on funds' names
the foreseen delay for RTS amendments
SMSG advice to ESMA on greenwashing
Download our SFDR and EU Taxonomy timeline.
By way of background, on 25 March 2022, the European Supervisory Authorities (the ESAs) published an Updated Supervisory Statement, the key objective of which was to achieve an effective and consistent application and national supervision of SFDR.
The ESAs reminded that most of the provisions on sustainability-related disclosures laid down in the SFDR were applicable from 10 March 2021. While the application of the RTS has been delayed, now confirmed for 1 January 2023, as initially foreseen in the EU Commission letter dated 25 November 2021.
This delay does not impact the application of the amendments introduced by TR to SFDR. Indeed, the taxonomy-alignment related product disclosures are in force in respect of the first two environmental objectives from 1 January 2022.
The ESAs recommended using the interim period from 10 March 2021 until 1 January 2023 (the Interim Period) to prepare for the application of the forthcoming RTS, while also applying the relevant measures of SFDR and TR according to the relevant application dates.
It was also clarified that, under Articles 5 and 6 of TR, supervisory expectations for disclosures during the Interim Period are for financial market participants to provide an explicit percentage quantification to the extent of which investments underlying the financial product are taxonomy-aligned.
In addition, the Updated Supervisory Statement includes an annex in which the ESAs detailed the application timeline of specific provisions of SFDR, TR and the related RTS. Transitional arrangements foreseen by the ESAs for entity-level principal adverse impact (the PAI) disclosures would no longer be relevant due to the delay of application of RTS. The first PAI disclosures in accordance with RTS should therefore be made in a statement published by 30 June 2023 in respect of a reference period corresponding to the calendar year 2022.
In Luxembourg, the Financial Sector Supervisory Authority (the CSSF) issued a communiqué on 1 April 2022 in order to bring the Updated Supervisory Statement to the attention of market participants.
In line with the Updated Supervisory Statement, the CSSF encouraged the use of the draft RTS as a reference during the Interim Period for the purposes of applying the provisions of articles 2a, 4, 8, 9, 10 and 11 of the SFDR and articles 5 and 6 of the TR.
On 6 April 2022, the EU Commission took a further step in its action plan on financing sustainable growth by adopting the RTS supplementing SFDR and TR.
In the explanatory memorandum, the Commission reiterated bundling all 13 RTS into a single act, as well as deferring their application to 1 January 2023.
RTS brings additional precisions regarding:
Under these rules, financial market participants will have to provide detailed information about tackling and reducing any possible negative impacts that their investments may have on the environment and society. These new requirements will help to assess the sustainability performances of financial products and enhance the comparability of financial products from different sectors.
Key precisions brought by the RTS concern the following areas:
The RTS specify the content, methodology and presentation of the mandatory information required by articles 4(1) to (5) of SFDR:
The RTSs also detail the content and presentation of the information to be disclosed at pre-contractual level in the sectoral documentation referred to in Article 6(3) of the SFDR.
Financial products referred to in Articles 8(1) to (2a) and 9(1) to (4a) of the SFDR, being those which, under Article 8, promote, among other characteristics, environmental or social characteristics (the Light Green Product) and under Article 9 have sustainable investment as an objective (the Dark Green Products), must perform disclosures in that regard, using the format of templates laid down in Annexes II and III of RTS. These templates contain minimum disclosure requirements in relation to:
New requirements are developed in relation with the DNSH principle referred to in Article 2, point (17), of the SFDR. with a view of aligning SFDR's DNSH disclosures with TR minimum safeguards.
Information that is mandatory for product website disclosures include, inter alia, descriptions of environmental or social characteristics or sustainable investment objective (as applicable) or a corresponding negative disclosure, details on investment strategies and asset allocation, monitoring data and measuring methodologies, as well as information on the attainment of the objectives.
Periodic disclosures in the sectoral documentation referred to in Article 11(2) of SFDR, must also be carried out in the format of the templates in Annexes IV and V of the RTS.
These templates require filling out elaborate information on, inter alia, how environmental or social characteristics or sustainable investment objectives (as applicable) were attained, historical comparisons covering up to five reference periods, and disclosures of the top 15 investments made during a particular reference period.
One month after the RTS' adoption, ESMA published two EU Commission letters inviting ESAs to propose a set of amendments to the RTS, in line with legislative evolutions related to environmentally sustainable activities and the necessity to improve the granularity of existing disclosures.
In anticipation of the final adoption of the draft Complementary Climate Delegated Regulation (see paragraph 7 below[ID1] ), the Commission requested for additional disclosures related to fossil gas and nuclear activities to be included in the RTS to ensure that market participants disclose information reflecting the provisions set out in the above Delegated Regulation shortly after the RTS application date.
The ESAs have submitted these draft RTS amendments to the Commission on 30 September 2022 (see paragraph 12 below[ID2]).
Aside the necessity to expand disclosures in relation to the evolutions of the notion of environmentally sustainable activities, the Commission has also requested amendments to the PAI regime, with a view of, inter alia, potentially extending the lists of universal PAI indicators and refining all the indicators for adverse impacts and their respective definitions, applicable methodologies, metrics and presentation.
The guiding principle is reducing the risk of "false certainty" and potential "safeguards washing" by requiring well-substantiated evidence that investments align with the safeguards. It also aims at calibrating the RTS so that disclosures are proportionate and feasible for financial market participants.'
As for financial product disclosures, ESAs were requested to enhance transparency on decarbonisation targets – these should cover intermediary targets and, if applicable, actions already pursued.
Finally, a reassessment was requested on whether existing provisions of RTS regarding products referred to in Articles 5 and 6 TR sufficiently address disclosure and information on environmentally sustainable economic activities.
These amendments are expected within a period of 12 months following the receipt of the letter (by May 2023 at the latest).
On 25 May 2022, the EU Commission provided additional clarifications on the application of the SFDR and Taxonomy, following a set of queries raised by the ESAs.
Key takeaways from the Commission's Q&A document:
At the end of May 2022, ESMA published a supervisory briefing to ensure convergence of practices of EU national competent authorities in the supervision of investment funds with sustainability features.
This briefing covers the following areas:
(a) Guidance for the supervision of fund documentation and marketing material:
(i) Creation of checklists for pre-contractual documentation assessments to ensure verification of completeness and adherence to minimum disclosure standards;
(ii) Verification of the consistency of information across the fund documentation and marketing material;
(iii) Verification of disclosure clarity and volume, absence of boilerplate language and labelling;
(iv) Principles for fund names (eg use of terms green / impact / sustainable etc);
(v) Clarifications for investment policies, which need to clearly reflect claims made in the fund documentation, as well as key disclosure elements for investment strategies.
(b) Guidance for website and periodic disclosures, respectively – alignment with the SFDR RTS and model disclosures set in its annexes.
(c) Admissibility of additional supervisory actions, which do not rely only on the financial market participants' disclosures, but on findings resulting from portfolio analyses, internal control functions, external auditors, on-site visits etc.
(d) Guidance on the integration of sustainability risks by AIFMs and UCITS management companies (ManCos) through risk-based, desk-based and on-site surveillance of effective implementation of relevant policies, as well as sample checks.
(e) Examples of breaches for which ESMA considers administrative measures and enforcement to be appropriate.
On 2 June 2022, ESAs undertook to collate various clarifications in relation to draft RTS under SFDR which were submitted to the EU Commission on 2 February and 22 October 2021 respectively. Even though the EU Commission has, at the time of publication, adopted the draft Delegated Regulation on the basis of the two draft RTS, the ESAs have undertaken to share their views on the draft documents, in their versions submitted to the Commission in 2021.
Key clarifications provided by the ESAs relate to the following points:
In July 2022, the European Parliament did not oppose the inclusion of gas and nuclear activities, under certain conditions, in the classification of transitional activities contributing to climate change mitigation. These are now covered in the Complementary Climate Delegated Act under the TR, published in the EU Official Journal on 15 July 2022 and set to apply from 1 January 2023.
Following the end of the scrutiny period and the non-objection of the EU Parliament and the Council, the Delegated Regulation of 6 April was published in the EU Official Journal on 25 July 2022. The date of application of technical standards contained therein has been confirmed for 1 January 2023.
On 27 July 2022, the CSSF published a communiqué to the investment fund industry on regulatory requirements in relation to SFDR and RTS.
The CSSF reminded market participants on several key regulatory deadlines:
The CSSF also highlighted that dedicated precontractual and periodic disclosures should be submitted for each fund compartment.
It is to note that the precontractual and periodic disclosure templates must not be amended except as foreseen under Article 2 of the SFDR RTS, ie the size, font type and colour of characters.
At the end of July 2022, the ESAs published the first annual report to the European Commission on the extent of voluntary disclosure of PAIs under the SFDR.
This report provides an overview of examples of best practice on disclosures, as well as including a set of recommendations for national competent authorities.
In the report, the ESAs provide a preliminary, indicative and non-exhaustive overview of examples of voluntary disclosures under Article 4(1)(a) of the SFDR. The ESAs conclude that disclosures vary significantly across jurisdictions and categories of financial market participants in scope of SFDR, and it is difficult to identify definite trends.
After announcing its regulatory expectations in July, the CSSF, on 6 September 2022, made available templates for RTS confirmation letters, which are to accompany filings of updated documents. These can be downloaded from the CSSF website, by UCITS ManCos and AIFMs, for UCITS and AIFs respectively.
In order for market participants to benefit from an accelerated document examination in view of visa stamping, the CSSF reminded of several conditions which have to be met:
From a procedural perspective, the following steps will have to be followed
This accelerated procedure will only be available for documentation submitted for examination by 31 October 2022, after which the CSSF will undertake examinations on a best effort basis.
Following the EU Commission mandate issued in May and the adoption of the Complementary climate Delegated Act, the ESAs have delivered their suggestions on specific disclosures to be provided in relation to investments in taxonomy-aligned gas and nuclear economic activities.
Going forward, it is proposed for financial product disclosures' templates to contain an additional yes/no question to identify the intent to invest in the above activities and if the answer is yes, a graphical representation of the proportion of investments in such activities.
In a letter dated 26 October 2022, the ESAs informed the EU Commission about a delay in delivery of a mandate to review the principal adverse impact indicators and financial product disclosures in the SFDR RTS.
By this letter, the ESAs stated that, due to significant challenges to deliver the requested input in the original timeframe, it will not be possible to meet the original deadline of 28 April 2023 to deliver the updated proposal of the SFDR RTS, which will therefore be delayed by up to six months.
In their latest Q&A on the SFDR RTS, published on 17 November 2022, the ESAs have clarified a number of points on the interpretation of the SFDR and the RTS across a range of topics including, inter alia, the following:
On 18 November 2022, ESMA published a consultation paper on guidelines on the use in funds' names of ESG or sustainability-related terms.
ESMA is proposing to introduce quantitative thresholds for the minimum proportion of investments sufficient to support the ESG or sustainability-related terms in funds' names.
The main elements of the consultation paper are:
All responses should be submitted by 20 February 2023. Following this, ESMA will finalise the guidance, foreseeing its application form three months following the publication of translations on the ESMA website, and a transitional period of six months for funds launched prior to the application date.
On 2 December 2022, the CSSF has published a FAQ with the aim at providing further clarity on certain aspects of SFDR. This FAQ has to be read in conjunction with guidance previously provided by the EU Commission, ESAs and CSSF itself.
Key clarifications provided by the CSSF relate to the following points:
The CSSF confirms that when amending the SFDR RTS pre-contractual templates, in respect of funds subject to supervision by the CSSF, such changes must be submitted to the CSSF for approval. Although changes to Article 8 and 9 templates should follow the same regime as any other change made to the issuing document, mere introduction of these templates does not (in principle) constitute a material change in light of CSSF Circular 14/591.
On 19 January, the Securities and Markets Stakeholder Group, a facilitator for ESMA’s stakeholder consultations, sent a letter of advice to ESMA in view of ESAs call for evidence on greenwashing, highlighting several items that would need to be clarified. These include, inter alia:
 Replacing the initial Joint ESA Supervisory Statement on the application of the Sustainable Finance Disclosure of 25 February 2021, JC 2021 05
 European Commission Letter of 08 July 2021 on information regarding regulatory technical standards under the Sustainable Finance Disclosure Regulation 2019/2088, Ares(2021)4439157
 Taxonomy-alignment relates to those environmentally sustainable activities which comply with and use the classification laid down by TR
 Article 27(2)(a) of the TR
 It is to note that financial products not in scope of articles 8 and 9 of the SFDR, disclosures must cover a negative statement indicating that underlying investments do not take into account the EU criteria for environmentally sustainable activities
 Joint ESA, Final Report on draft Regulatory Technical Standards with regard to the content of presentation of disclosures pursuant to Article (4), 9(6) and 11(5) of Regulation (EU) 2019/2088 of 22 October 2021, JC 2021 50
 Delegated Regulation C(2022)1931 final of the European Commission of 6 April 2022 supplementing Regulation (EU) 2019/2088 of the European Parliament and of the Council with regard to regulatory technical standards specifying the details of the content and presentation of the information in relation to the principle of ‘do no significant harm’, specifying the content, methodologies and presentation of information in relation to sustainability indicators and adverse sustainability impacts, and the content and presentation of the information in relation to the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports
 As per its letter to the Parliament and the Council of 8 July 2021 (Ares(2021)4439157)
 As per its letter to the Parliament and the Council of 25 November 2021 (Ares(2021)7263490)
 The so-called "comply or explain mechanism"
 Article 6(3) of SFDR provides: (a) for AIFMs, in the disclosures to investors referred to in Article 23(1) of Directive 2011/61/EU
(g) for UCITS management companies, in the prospectus referred to in Article 69 of Directive 2009/65/EC
(h)for investment firms which provide portfolio management or provide investment advice, in accordance with Article 24(4) of Directive 2014/65/EU
 As described in Article 18 of the TR
 Article 11(2) of SFDR provides: (a) for AIFMs, in the annual report referred to in Article 22 of Directives 2011/61/EU
(g) for UCITS management companies, in the annual report referred to in Article 69 of Directive 2009/65/EC;
(h) for investment firms which provide portfolio management, in a periodic report as referred to in Article 25(6) of Directive 2014/65/EU
 European Commission Letter of 8 April 2022 on mandate to the ESAs to develop SFDR RTS on product exposures to gas and nuclear activities, Ares(2022)2798608
 Draft Commission Delegated Regulation amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities
 European Commission Letter of 11 April 2022 on mandate to the ESAs on PAI product, Ares(2022)2937873
 Articles 4(6) and 7 SFDR
 This means that products which are no longer offered to investors but continue to exist, must nevertheless be classified according to SFDR and TR
 This does not apply to government bonds
 ESMA, supervisory briefing, Sustainability risks and disclosures in the area of investment management, ESMA34-45-1427
 Alternative investment fund managers, as defined in Directive 2011/61/EU
 Undertakings for collective investment in transferrable securities, as defined in Directive 2009/65/EC
 Final Report on draft Regulatory Technical Standards with regard to the content, methodologies and presentation of disclosures pursuant to Article 2a(3), Article 4(6) and (7), Article 8(3), Article 9(5), Article 10(2) and Article 11(4) of Regulation (EU) 2019/2088
 Final Report on draft Regulatory Technical Standards with regard to the content and presentation of disclosures pursuant to Article 8(4), 9(6) and 11(5) of Regulation (EU) 2019/2088
 Under stringent conditions including, inter alia, that both gas and nuclear contribute to the transition to climate neutrality; for nuclear to fulfils nuclear and environmental safety requirements; and for gas to contribute to the transition from coal to renewables
 Commission Delegated Regulation (EU) 2022/1214 of 9 March 2022 amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities, OJ L 188 of 15 July 2022
 Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 supplementing Regulation (EU) 2019/2088 of the European Parliament and of the Council with regard to regulatory technical standards specifying the details of the content and presentation of the information in relation to the principle of ‘do no significant harm’, specifying the content, methodologies and presentation of information in relation to sustainability indicators and adverse sustainability impacts, and the content and presentation of the information in relation to the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports, OJ L 196 of 25 July 2022
 Joint ESAs’ Report on the extent of voluntary disclosure of principal adverse impact under the SFDR of 28 July 2022, JC 2022 35
Luxembourg Legal Services
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