Last week the ESAs published the latest “Joint ESAs Final Report on RTS under SFDR”. It discusses significant changes proposed to the Sustainable Finance Disclosure Regulation (SFDR) level 2 Regulatory Technical Standards (RTS). The major changes in the proposed RTS are as follows:
- Principal Adverse Impact (PAI) Indicators: There have been substantial changes to the PAI indicators, including additional social indicators and refinements to calculation methodologies. These changes are aimed at providing a more comprehensive and accurate representation of the social impacts of investment decisions.
- Do No Significant Harm (DNSH)
-
- DNSH Disclosure Design Options: The regulation proposes changes related to DNSH disclosure design options. This means that entities will have more flexibility in how they disclose the DNSH impacts of their activities.
- Simplification of the Templates: The templates for DNSH disclosures have been simplified1. This is intended to make it easier for entities to comply with the DNSH disclosure requirements and for investors to understand the disclosures.
- Other Technical Adjustments: There have been other technical adjustments to the DNSH requirements. These adjustments are intended to improve the clarity and effectiveness of the DNSH requirements.
- Mandatory Disclosure Templates (pre-contractual and periodic documents)
-
- Simplification of the Templates: The templates for mandatory disclosures have been simplified. This is intended to make it easier for entities to comply with the disclosure requirements and for investors to understand the disclosures.
- New Product Disclosure of Greenhouse Gas Emissions Reduction Targets: The amended regulation introduces new product disclosure of greenhouse gas emissions reduction targets. This means that entities will need to disclose their targets for reducing greenhouse gas emissions.
- However, those changes imply that all existing templates need to be changed and re-implemented causing significant efforts for the industry.
- New Optional Disclosure Provisions: The amended SECR (streamlined energy and carbon reporting) introduced new optional disclosure provisions related to the principal adverse impacts on sustainability factors of the assets financed by the underlying exposures for both non-ABCP traditional STS securitisations and on-balance-sheet STS securitisations.
- Machine readability: in preparation for the implementation of the European Single Access Point (ESAP) Regulation, the disclosures which will be made available on ESAP should be made available in a format which is at the same time human readable and machine readable. This affects all disclosures covered by the SFDR Delegated Regulation. This means that SFDR data exchange will no longer be restricted to the EET (European ESG Template). Instead, similar to other regulatory reports, SFDR needs to be reported to an EU regulatory platform. This way SFDR becomes a “real” regulatory reporting.
If you have any questions about the new RTS proposal and the impact on your current SFDR reporting, please feel free to contact the iQuant Team anytime.
