EU Commission answers questions on interpretation of SFDR

Published 17 May 2023

PrintCategory: Impact and ESG

The EU Commission has published its answers to questions on the interpretation of SFDR. The questions were put forward by the ESAs in September 2022 in order to receive clarification within central aspects of SFDR.

The EU Commission confirms that SFDR does not prescribe any approach or set out minimum requirements regarding the key parameters defining a “sustainable investment”, i.e. (i) contribution to an environmental or social objective, (ii) does not significantly harm, and (iii) good governance.

However, the EU Commission states that this gives fund managers “an increased responsibility” towards the investment community and means that “they should exercise caution” when measuring the key parameters of a ‘sustainable investment’ which indicates that regulators do expect disclosed methodologies to provide a certain level of detail.

This assumption is further supported by the fact that the Danish FSA has previously criticized financial market participants, including managers of article 9 products, for not providing enough detail in its SFDR disclosures.

In summary, the EU Commission has provided answers and clarification within the following main areas:

  • The definition of “sustainable investments” in SFDR art. 2(17), its scope and when an economic activity contributes to an environmental or social objective.
  • The definition of SFDR art. 9(3) and financial products with carbon emission reduction as their objective as well as the disclosures when reference benchmarks have been used or when no benchmarks have been designated.
  • The opportunity to promote carbon emissions reduction as an environmental characteristic as opposed to having it as an objective.
  • The assessment of financial products with carbon emission reduction as their objective when having either a passive or active investment strategy.
  • What the meaning of “consider” is in relation to principal adverse impacts (PAI) indicators.
  • The 500-employee threshold being decisive for when PAI indicators shall be considered and reported on.
  • The frequency of periodic disclosure for portfolio management services.

The EU Commission’s answers can be found here.

Tags:  Disclosure RequirementsSustainability


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