European supervisory authorities (“ESAs”) release draft regulatory technical standards (“RTS”) for sustainability disclosures: proposed changes to principal adverse impacts (“PAIs”) and financial product disclosures
The ESAs recently published a Joint Consultation Paper on the review of the Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 supplementing Regulation (EU) 2019/2088 (“SFDR”). This paper, released on 12 April 2023, focuses on the proposed RTS for the content, methodologies, and presentation of sustainability disclosures in particular the sustainability indicators in relation to principal adverse impacts referred in Article 4(6) and 4 (7) SFDR, the pre-contractual and periodic documents in Article 6(3) and 11(2) SFDR and the website product disclosures for financial products in Article 10(1) SFDR.
The Joint Consultation Paper aims to address the need for further guidance and clarification regarding sustainability disclosures in financial products. The review seeks to ensure consistency and comparability in disclosures, enhance investor protection, and promote sustainable finance practices.
Proposed changes to sustainability disclosures
The consultation paper outlines proposed regulatory technical standards for the content of sustainability disclosures. It covers various aspects, including environmental, social, and governance (“ESG”) factors, PAIs, and the use of sustainability indicators. The aim is to provide clear guidelines on the information that should be disclosed by financial market participants and financial advisers.
Key points of the paper:
- Article 4(6) SFDR: clarifies the criteria for determining whether a financial product promotes ESG;
- Article 4(7) SFDR: adds requirements regarding sustainability claims made by financial products;
- Article 6(3) SFDR: additional disclosure obligations for market participants regarding the consideration of adverse impacts in the investment decision-making process;
- Article 11(2) SFDR: extends disclosure requirements for financial advisers to cover additional information related to the consideration of sustainability risks and the impact of sustainability factors on investments recommendations; and
- Article 10(1) SFDR: requires the disclosure of the criteria used to determine the sustainability of the investments and the information on how ESG factors are considered in the investments process.
The consultation paper proposes standardised templates, symbols, and visual aids to facilitate comparability and comprehensibility of the information provided to investors.
Key implications for financial market participants
The proposed changes aim to improve the transparency of sustainability-related disclosures, enabling investors to make informed decisions. Market participants will need to review and potentially revise their current disclosure practices to align with the new regulatory requirements.
The consultation paper emphasises the importance of protecting investors' interests by providing them with accurate and comprehensive sustainability information.
The consultation is open until 4 July 2023.
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