𝗧𝗵𝗶𝘀 𝗮𝗿𝘁𝗶𝗰𝗹𝗲 𝘄𝗮𝘀 𝘄𝗿𝗶𝘁𝘁𝗲𝗻 𝗯𝘆 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 𝗖𝗘𝗢 𝗦𝗵𝗮𝗶 𝗛𝗶𝗹𝗹.
The EU regulators (ESA) have just proposed a set of revisions to the SFDR (Sustainable Finance Disclosure Requirement).
The consultation closes July and 2 law firms we have spoken to estimate any changes would come into legal effect in Jan 2024.
𝗛𝗲𝗿𝗲'𝘀 𝗮 𝘀𝘂𝗺𝗺𝗮𝗿𝘆 𝗼𝗳 𝘁𝗵𝗲 𝟱 𝗸𝗲𝘆 𝗽𝗼𝗶𝗻𝘁𝘀 𝗳𝗿𝗼𝗺 𝘁𝗵𝗲 𝟭𝟱𝟴-𝗽𝗮𝗴𝗲 𝗰𝗼𝗻𝘀𝘂𝗹𝘁𝗮𝘁𝗶𝗼𝗻 𝗽𝗮𝗽𝗲𝗿:
1️⃣ The number of mandatory PAIs (indicators that funds making sustainable investments will have to report to) will be increased from 14 to 18.
The new 4 are 'Social' indicators, relating to the companies the fund invests in:
🚩 Revenue earned in countries which don't co-operate with the EU on tax
🚩 Involvement in production of tobacco
🚩 Whether the company tries to block trade unions
🚩 % of staff earning less than an adequate wage
2️⃣ If the fund has an emissions reduction objective, it must publish quantified details.
3️⃣ More disclosure will be required on a fund's EU Taxonomy alignment (bringing SFDR and the Taxonomy closer together).
4️⃣ The requirement for a company to 'do no significant harm' to certain EU environmental and social objectives - if it is to classify as a 'sustainable investment' - will be more precisely defined (with quantified 'thresholds' to limit fund managers' discretion).
5️⃣ The regulatory disclosures that fund managers have to publish (Annexes II-V) will have a summary dashboard at the front, designed for non-professionals to understand.
𝗙𝗼𝗿 𝗮𝗻 𝗔𝗿𝘁𝗶𝗰𝗹𝗲 𝟴 𝗳𝘂𝗻𝗱, 𝗶𝘁 𝘄𝗶𝗹𝗹 𝗰𝗼𝗻𝘁𝗮𝗶𝗻 𝟱 𝗸𝗲𝘆 𝗯𝗼𝘅𝗲𝘀:
🚩 What 'environmental and social characteristics' are promoted by the fund (max 250 characters)
🚩 What % of the fund's investments are sustainable
🚩 What % of the fund's investments are Taxonomy-aligned
🚩 Does the fund consider the PAIs
🚩 If the fund supports an emissions reduction target, what is the total % reduction targeted, and by what year
𝗪𝗵𝗮𝘁 𝗰𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻𝘀 𝘀𝗵𝗼𝘂𝗹𝗱 𝘄𝗲 𝗱𝗿𝗮𝘄 𝗳𝗿𝗼𝗺 𝘁𝗵𝗲𝘀𝗲 𝗻𝗲𝘄 𝗽𝗿𝗼𝗽𝗼𝘀𝗮𝗹𝘀?
💭 The SFDR compliance headache is not going away:
The EU seems determined to keep 'raising the bar' for any fund marketing itself as 'sustainable'.
💭 Investors' need for agile software that can keep up with increasing disclosure requirements is going to increase.
💭 Our argument about 𝐀𝐫𝐭𝐢𝐜𝐥𝐞 𝟴+ (linked here) gets stronger:
If a fund wants to be labelled Article 8 without reporting to the PAI, it will have to publish a front page 'dashboard' every quarter, that says "This product did not make sustainable investments" and then "This product did not consider the most significant negative impacts of its investments on the environment and society" (the regulator wants this wording to replace 'PAIs', to make it clearer).
Which will surely make any investor think "𝘵𝘩𝘪𝘴 𝘧𝘶𝘯𝘥 𝘮𝘪𝘨𝘩𝘵 𝘩𝘢𝘷𝘦 𝘢𝘯 𝘈𝘳𝘵𝘪𝘤𝘭𝘦 8 𝘭𝘢𝘣𝘦𝘭, 𝘣𝘶𝘵 𝘪𝘵 𝘪𝘴 𝘯𝘰𝘵 𝘪𝘯 𝘢𝘯𝘺 𝘮𝘦𝘢𝘯𝘪𝘯𝘨𝘧𝘶𝘭 𝘸𝘢𝘺 𝘢 𝘴𝘶𝘴𝘵𝘢𝘪𝘯𝘢𝘣𝘭𝘦 𝘧𝘶𝘯𝘥".
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