Some points we noticed:
- The SFDR includes a requirement for financial market participants to include disclosure information at the pre-contract stage (SFDR Articles 14, 15 and 16).
- Articles 23–49 of the SFDR go into detail on each required section of the disclosure. The disclosure must be drafted in one of the official languages of the home Member State of the financial market participant. If the financial product is also sold in another Member State, the document must also be drafted in an official language of that State. (Article 5)
- Going forward, disclosures should include reference to historical data, up to the last five periods. 2024’s disclosure should include reference to 2023’s data, and so on. Disclosures made in 2028 should include historical data from all reports, starting from the first disclosure in 2023. (Article 64)
- Further, financial advisors must disclose when they consider principal adverse impacts in their advice – and when they don’t.
Annex I Table 1 must be included in the disclosure, and the Regulation document goes through the section requirements one by one.
Annex II provides the template for pre-contractual disclosure under Article 15 of the SFDR. Article 17 of the SFDR gives information on how to calculate the degree to which investments are in environmentally sustainable economic activities.
Annex III is the template for outlining the sustainable development objective of the financial product, with reference to international standards. (SFDR Articles 18–21)
Annex IV is the template for giving information on the environmental and/or social characteristics of the investment/product, under Articles 50–57 and Article 65.
Annex V is the template for detailing sustainable development objectives, covered in Articles 58–64.
All the documents can be found in full on the EC website . Along with the templates, the Annexes include formulae to calculate greenhouse gas emissions (GHG), carbon footprint and ‘GHG intensity of investee companies’.
Managers marketing and investing in the EU should be preparing now for this disclosure. Even though the current reporting year is still underway, the disclosure templates are highly detailed and will take time to prepare. Getting data-gathering procedures in place now will pay dividends going forward.
Non-EU clients should get advice on whether they should also be completing the disclosure. For example, if any management or advisory duties provided to EU-based firms, contractual obligations may specify a requirement to adhere to EU rules.
While the new reporting requirements of the SFDR will no doubt present fund managers with a challenge, they also offer the opportunity to both test and adjust your firm’s ESG alignment, as well as providing your investors with transparency and assurance of your focus on sustainability and ESG. practices.
Auxadi is a specialist provider of tailored fund services, supporting you with the corporate management of your investment structures.
From international accounting, tax and payroll service, through to complying with regulatory and legal requirements such as the SFDR – Auxadi are the ideal partner with specialist expertise on the ground in over 50 key financial markets across the globe.
*Financial market participants are defined as: “asset managers, institutional investors, insurance companies, pension funds, etc., all entities offering financial products where they manage clients’ money.”