Thematic review of sustainability disclosures for funds with sustainable investment as the objective

Published 8 March 2023

PrintCategory: Impact and ESG

On 3 February 2023, the Danish Financial Supervisory Authority (“DFSA”) published a thematic review of sustainability disclosures for eight funds with sustainable investments as their objective. The review was focused on disclosures in key investor information documents (“KIID”) and prospectuses. Among others, the purpose was to investigate whether sustainability information was given in a comprehensive, clear, and adequate way as well as whether investors were given the required information.

The review investigated compliance with disclosure requirements following directly from the SFDR, Taxonomy and KIID Regulation. However, the DFSA has not reviewed the disclosures and templates required pursuant to the level 2 SFDR disclosure requirements applicable from 1 January 2023. Further, the review did not cover internal processes by the Alternative Investment Fund Managers (“AIFM”).

Overall, the DFSA found that the investigated AIFMs had not properly ensured that the disclosed sustainability information was sufficient. The disclosures were too generic on the sustainability issues. The DFSA underlined that for funds with sustainable investment as the objective it is especially important with adequate and comprehensive sustainability information since this information is essential for investors’ decisions.

The following observations made by the DFSA across the eight AIFMs and funds can be highlighted:

  • Information on the sustainable investment objective has been inconsistent and unclear. As an example, in one of the funds DFSA found it difficult to assess whether the objective was solely reduction of carbon emissions or also a contribution to a circular and more resource-efficient economy. DFSA concluded that it is not problematic to have more than one objective, however, it must be clear what the fund’s actual objectives are.
  • Information in the prospectuses on how the sustainable investment objectives of the funds are going to be attained and how the contribution to the objectives is measured have been insufficient or incomplete. In one of the investigated AIFMs, the fund had the objective of, among others, investing in accordance with the Paris Agreement and contributing to the achievement of the UN’s 17 Sustainable Development Goals (“SDGs”). However, since the prospectus did not include information on, among others, how it was ensured that the fund’s investments contributed to all 17 SDGs, DFSA found the information insufficient. DFSA hereby underlined that this information is central in context of the SFDR as investors need to be able to assess how their investments are impacted by the funds’ sustainable objectives. Further, this information is important for investors in order to be able to assess whether a trustworthy plan for the attainment and measurement of the investment objective has been made.
  • When a fund commits to invest in environmentally sustainable economic activities in accordance with the Taxonomy Regulation, information on how the investments will meet the requirements for those economic activities have been either insufficient or not included. Among others, AIFMs need to ensure that for each fund it is informed how requirements for environmentally sustainable economic activities as well as the threshold values are complied with. Also, the prospectuses have been unclear and not consistent when it comes to information on the funds’ sustainable investment objectives. Further, it was underlined in the review of one of the AIFM, that the proportion of a funds’ underlying investments in economic activities that qualify as environmentally sustainable must be informed in percentage. Also, the prospectus must include information on the percentage proportion of investments in enabling and transitional activities.
  • For several funds, the prospectuses did not include sufficient information on how it was ensured that the investments did not significantly harm environmental or social objectives as well as whether the underlying investments were made only in companies following good governance practices. They are both requirements for an investment to be sustainable. Specifically for the information on the do no significant harm-assessment, DFSA has attributed the deficiencies to the fact that AIFMs did not provide sufficient information on their criteria and processes for the assessment.
  • KIIDs in several of the funds did not describe the sustainable investment objectives which the funds’ investments shall contribute to. Also, for some funds the DFSA found discrepancy between the KIID and the prospectus when it came to information on the objectives.
  • Information on the impact of sustainability risks on the return of the fund as well as information on how sustainability risks are integrated into the investment decisions have not been addressed correct by several funds. They have described positive impacts of sustainability risks and included information on the funds’ own work regarding sustainability and the impact on the fund’s return. Both approaches are not in accordance with the actual definition of sustainability risks in SFDR art. 2(22). Also, DFSA underlined the importance of information on whether these risks have a low, medium, or high likely impact on the return of the fund. Further, DFSA has for one AIFM highlighted that the prospectus did not include information on the specific sustainability factors which form basis of the assessment on the impact of sustainability risks on the return of the fund. DFSA underlined the importance of these information as investors shall be able to understand the fund’s exposure to sustainability risks.
  • Where an index has been used as a reference benchmark, information on how the index is adapted to the objective as well as how and why the index differs from a broad market index, has in some cases been left out of the prospectus. It is not enough only to state in the prospectus that an index has been used, which was the case for one of the investigated AIFMs.

DFSA has issued orders to each investigated AIFM based on of the above observations showing violation of disclosure requirements as well as material issues.

The press release and the individual statements can be found here.

Next steps: Later this year, the DFSA will follow their review up by publishing a memorandum in which they describe and elaborate on what they have identified as good practices within the area.

Tags:  ComplianceDisclosure RequirementsSustainability


Also tagged ‘Compliance’

4 Sep 2023Impact and ESGUpdates

Memo from the Danish Financial Supervisory Authority on periodic reporting

On 30 August 2023, the Danish Financial Supervisory Authority (“DFSA”) published a memo describing the requirements in SFDR art. 11 for periodic reporting.

ComplianceDisclosure RequirementsSustainability
9 Jun 2023Impact and ESGUpdates

Updated guide on the SFDR and Taxonomy Regulation

The updated guide takes regulation and guidance from public consultations and Q&A’s since July 2022 into account. Further, it reflects the most recent market practice on the application of the regulations.

ComplianceDisclosure RequirementsSustainability
8 Mar 2023Impact and ESGUpdates

Public consultation on the update of the OECD Guidelines for Multinational Enterprises

In general, the Guidelines, last updated in 2011, are a set of non-binding recommendations to businesses for ensuring responsible business conduct in all areas where business interacts with society.

ComplianceGovernanceSustainability
21 Feb 2023Impact and ESGUpdates

ESMA consultation on the use of ESG or sustainability-related terms in fund names

On 20 February 2023, ESMA closed their consultation on Guidelines on funds' names using ESG or sustainability-related terms launched back in November 2022.

ComplianceESMASustainability
16 Feb 2023Impact and ESGUpdates

Opinions issued on the draft European Sustainability Reporting Standards

The European Financial Reporting Advisory Group (EFRAG) submitted a draft set of European Sustainability Reporting Standards (ESRS Set 1) to the EU Commission in November 2022.

ComplianceESMASustainability
9 Jan 2023Impact and ESGUpdates

Requirements for Gender Composition in Managements have Tightened

On 1 January 2023 new rules have imposed stricter requirements for targets and policies on the gender composition of managements. These rules cover both large Danish companies (covered by accounting class C), including state-owned and some listed companies (covered by accounting class D), as well as certain companies within the financial area

ComplianceDanish RegulationSustainability
6 Jan 2023Impact and ESGUpdates

Final Report on Minimum Safeguards

The European Commission expert group; Platform on Sustainable Finance, has published a final report on the minimum safeguards laid out in Article 3 and 18 of the Taxonomy Regulation. It replaces the draft report published in July 2022.

ComplianceSustainability
6 Jan 2023Impact and ESGUpdates

Final Adoption of the CSRD

The CSRD has now been finally adopted after the Council of the European Union on 28 November 2022 approved the European Parliament’s position. On 16 December 2022, the directive was published in the Official Journal. The date of entry into force is 20 days from the publication date.

ComplianceSustainability
21 Nov 2022Impact and ESGUpdates

CSRD has been Passed by the European Parliament

The European Parliament has passed the Corporate Sustainability Reporting Directive (“CSRD”). CSRD replaces the Non-Financial Reporting Directive (“NFRD”), and introduces higher requirements of more detailed reporting, and a mandatory EU sustainability reporting standard.

ComplianceSustainability
1 Aug 2022Impact and ESGUpdates

New Guide on SFDR and EU Taxonomy Regulation

Invest Europe has published a comprehensive members guide on EU ESG reporting requirements for fund managers to clarify grey areas that exist around the day-to-day application of the regulation.

ComplianceDisclosure RequirementsSustainability
22 Jun 2022Impact and ESGUpdates

Authorised AIFMs’ Integration of Sustainability Factors and Risks Applies from 1 August 2022

Authorized AIFMs shall from 1 August 2022 ensure that their systems, processes, and internal controls reflect relevant sustainability risks as defined in the SFDR.

AIFMDComplianceDisclosure RequirementsSustainability
26 Apr 2022Impact and ESGUpdates

Final Regulatory Technical Standards for SFDR and Taxonomy Regulation are Published

The RTS will define the new standard for sustainability-related disclosures in the financial services sector in the EU and supplements provisions of the SFDR and of the Taxonomy Regulation.

AIFMDComplianceDisclosure RequirementsSustainability
24 Jan 2022Impact and ESGUpdates

Invest Europe to set ESG Reporting Standards

In November 2021, Invest Europe released its Climate Ambition in which the association committed to contribute to the EU becoming climate-neutral by 2050 and pledged to help the P/E and VC industry move towards net zero. 

AIFMDComplianceDisclosure RequirementsSustainability
15 Dec 2021AIFsFinancial RegulationImpact and ESGUpdates

The Danish FSA: Significant Room for Improvement for SFDR Disclosures

The Danish FSA has assessed the quality of 4 pension companies and eight credit institutions' website disclosures with regards to information about their policies on the integration of sustainability risks in the investment decision-making process.

AIFMDComplianceDisclosure RequirementsSustainability
6 Dec 2021AIFsFinancial RegulationImpact and ESGUpdates

Application of SFDR Level 2 Obligations Delayed (Again)

The European Commission has once again delayed the application of the level 2 obligations of the Sustainable Finance Disclosure Regulation (SFDR) until January 2023.

AIFMDComplianceDisclosure RequirementsSustainability
9 Aug 2021Corporate RegulationImpact and ESGUpdates

Commission Delays Application Date for the ESG Disclosure and Taxonomy Regulations

The Commission has postponed the date of application of the detailed regulatory technical standards (RTS) under the ESG Disclosure Regulation and the Taxonomy Regulation by six months from 1 January 2022 to 1 July 2022.

ComplianceCross-BorderDanish Regulation
6 Aug 2021Corporate RegulationImpact and ESGUpdates

Commission Clarifies Questions of Interpretation Regarding ESG Disclosures

The Commission has answered a number of questions from the European Supervisory Authorities (ESAs) regarding the ESG Disclosure Regulation.

ComplianceCross-BorderDanish Regulation
10 May 2021ArticlesInvestors Regulation

New Danish Act on Screening of Foreign Direct Investments

The new act on control of foreign direct investments (the “Act”) was adopted on 4th May 2021. The Act introduces a new framework for government screening of foreign investments and certain types of agreements with Danish companies.

ComplianceCross-BorderDanish Regulation
8 Mar 2021AIFsUpdates

ESA Publishes Joint Supervisory Statement on the Interpretation on Fund Managers’ ESG Disclosure Obligations

From 10 March 2021, fund managers are required to make certain ESG disclosures available on their website and in their pre-contractual disclosures to investors.

AIFMDComplianceDisclosure RequirementsSustainability
5 Aug 2020Taxation / VAT

Deferral of Certain DAC6-Related Time Limits

On 29 June 2020, the Danish minister of taxation issued an executive order which defers certain DAC6-related time limits.

ComplianceDAC6
26 May 2020Impact and ESG

ESA Consults on Fund Managers’ ESG Disclosure Obligations

The European Supervisory Authorities (ESA) has published draft technical standards setting out detailed rules on i.a. fund managers’ obligations under the ESG Disclosure Regulation.

AIFMDComplianceDisclosure RequirementsSustainability
9 May 2020Taxation / VAT

Commission Proposes Deferral of Certain DAC6-Related Time Limits

Due to the COVID-19 crisis, the European Commission has put forward a proposal for a directive that will defer certain time limits of DAC6, the EU directive regarding mandatory reporting in relation to arrangements with cross-border implications.

ComplianceDAC6
28 Apr 2020Taxation / VAT

Call to Defer DAC6 Reporting

A group of financial associations, including Invest Europe, has requested a deferral of the DAC6 reporting obligation until 2021 across all member states and the UK.

ComplianceDAC6
6 Nov 2019Taxation / VAT

Proposal to Transpose DAC6 into Danish Law Presented in the Danish Parliament

On 6 November 2019 the Danish government presented its proposal to transpose the EU directive regarding mandatory reporting in relation to arrangements with cross-border implications (“DAC6”) into Danish law.

ComplianceDAC6Disclosure Requirements
24 Sep 2019Financial Regulation

Proposal to Increase Certain Requirements for Managers under the AIFM and AML Act Published for Consultation

On 28 August 2019 the Danish FSA (in Danish: Finanstilsynet) published for consultation a draft proposal to change, among others, the Danish AIFM Act and the Danish AML Act.

ComplianceDanish RegulationKYC / AMLWhistleblowing
2 Jul 2019Other Compliance Requirements

Japan Deemed a Sector Specific, Safe Third Country by the Danish DPA

Transfer of personal data from Denmark to (private) organisations in Japan that are subject to the APPI will not require prior approval from the DPA.

ComplianceDanish RegulationGDPR
11 Jun 2019Other Compliance Requirements

Danish Company Faces Prosecution and a Fine of DKK 1.5 mill. for GDPR Violation

On 11 June 2019, the Danish Data Protection Agency ("DPA") has reported a Danish furniture company to the Danish police for not deleting information on approx. 385,000 customers.

ComplianceDanish RegulationGDPR
23 May 2019Taxation / VAT

DAC6 Expected to be Transposed into Danish Law in Second Half of 2019

DAC6, the new EU directive regarding mandatory reporting in relation to arrangements with cross-border implications DAC6, will increase reporting requirements for arrangements that have cross-border implications.

ComplianceDAC6Disclosure Requirements

Other updates

17 Jun 2024Impact and ESG

Final Report from ESMA with guidelines on funds’ names

The European Securities and Markets Authority has published a final report containing guidelines on funds’ names using ESG or sustainability-related terms.

ESMASustainability
13 Jun 2024Taxation / VATUpdates

Proposal for new strategy on entrepreneurship in Denmark

On 12 June 2024, the Danish government presented a proposal regarding entrepreneurship in Denmark, which includes initiatives aimed at creating better access to capital for startups and certain relaxation of taxes.

Venture Capital
21 May 2024Impact and ESGUpdates

Summary report of the consultations on the implementation of SFDR

The European Commission initiated in September 2023 public and targeted consultations on the implementation of the SFDR running until 22 December 2023. A summary of the contributions on the consultations have now been published in a summary report.

Disclosure RequirementsRegulatory Technical StandardsSustainability
13 May 2024Impact and ESGUpdates

The Danish FSA: Investment Managers must be better at disclosing sustainability related information

The Danish Financial Supervisory Authority has in a thematic review assessed several sustainability related issues at two investment managers.

Disclosure RequirementsSustainability
7 May 2024Impact and ESGUpdates

Invest Europe GP ESG Due Diligence Guide

Invest Europe has published a revised GP ESG Due Diligence Guide. It provides guidance on how ESG factors can be incorporated into general partner’s management and decision-making processes.

Sustainability
7 May 2024Financial RegulationUpdates

The Danish implementation of a framework for supervision of the financial sector under The DORA Regulation and NIS2 Directive

On 2 May 2024, the Danish Parliament adopted an amendment to the Danish Financial Business Act to provide the Danish FSA with a legal framework for supervision of the financial sector under the DORA Regulation and the NIS-2 Directive.