Request a Demo
ESAs' proposed Changes to SFDR
4/14/2023 ~ 11:15:21 AM

๐—ง๐—ต๐—ถ๐˜€ ๐—ฎ๐—ฟ๐˜๐—ถ๐—ฐ๐—น๐—ฒ ๐˜„๐—ฎ๐˜€ ๐˜„๐—ฟ๐—ถ๐˜๐˜๐—ฒ๐—ป ๐—ฏ๐˜† ๐—œ๐—ป๐˜๐—ฒ๐—ด๐—ฟ๐˜‚๐—บ ๐—˜๐—ฆ๐—š ๐—–๐—˜๐—ข ๐—ฆ๐—ต๐—ฎ๐—ถ ๐—›๐—ถ๐—น๐—น.

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.

๐—›๐—ฒ๐—ฟ๐—ฒ'๐˜€ ๐—ฎ ๐˜€๐˜‚๐—บ๐—บ๐—ฎ๐—ฟ๐˜† ๐—ผ๐—ณ ๐˜๐—ต๐—ฒ ๐Ÿฑ ๐—ธ๐—ฒ๐˜† ๐—ฝ๐—ผ๐—ถ๐—ป๐˜๐˜€ ๐—ณ๐—ฟ๐—ผ๐—บ ๐˜๐—ต๐—ฒ ๐Ÿญ๐Ÿฑ๐Ÿด-๐—ฝ๐—ฎ๐—ด๐—ฒ ๐—ฐ๐—ผ๐—ป๐˜€๐˜‚๐—น๐˜๐—ฎ๐˜๐—ถ๐—ผ๐—ป ๐—ฝ๐—ฎ๐—ฝ๐—ฒ๐—ฟ:

1๏ธโƒฃ The number of mandatory PAIs (indicators that funds making sustainable investments will have to report to) will be increased from 14 to 18.ย ย 

The new 4 are 'Social' indicators, relating to the companies the fund invests in:

๐Ÿšฉ Revenue earned in countries which don't co-operate with the EU on tax

๐Ÿšฉ Involvement in production of tobacco

๐Ÿšฉ Whether the company tries to block trade unions

๐Ÿšฉ % of staff earning less than an adequate wage

2๏ธโƒฃ If the fund has an emissions reduction objective, it must publish quantified details.

3๏ธโƒฃ More disclosure will be required on a fund's EU Taxonomy alignment (bringing SFDR and the Taxonomy closer together).

4๏ธโƒฃ 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).ย ย 

5๏ธโƒฃ 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.

๐—™๐—ผ๐—ฟ ๐—ฎ๐—ป ๐—”๐—ฟ๐˜๐—ถ๐—ฐ๐—น๐—ฒ ๐Ÿด ๐—ณ๐˜‚๐—ป๐—ฑ, ๐—ถ๐˜ ๐˜„๐—ถ๐—น๐—น ๐—ฐ๐—ผ๐—ป๐˜๐—ฎ๐—ถ๐—ป ๐Ÿฑ ๐—ธ๐—ฒ๐˜† ๐—ฏ๐—ผ๐˜…๐—ฒ๐˜€:

๐Ÿšฉ What 'environmental and social characteristics' are promoted by the fund (max 250 characters)

๐Ÿšฉ What % of the fund's investments are sustainable

๐Ÿšฉ What % of the fund's investments are Taxonomy-aligned

๐Ÿšฉ Does the fund consider the PAIs

๐Ÿšฉ If the fund supports an emissions reduction target, what is the total % reduction targeted, and by what year

๐—ช๐—ต๐—ฎ๐˜ ๐—ฐ๐—ผ๐—ป๐—ฐ๐—น๐˜‚๐˜€๐—ถ๐—ผ๐—ป๐˜€ ๐˜€๐—ต๐—ผ๐˜‚๐—น๐—ฑ ๐˜„๐—ฒ ๐—ฑ๐—ฟ๐—ฎ๐˜„ ๐—ณ๐—ฟ๐—ผ๐—บ ๐˜๐—ต๐—ฒ๐˜€๐—ฒ ๐—ป๐—ฒ๐˜„ ๐—ฝ๐—ฟ๐—ผ๐—ฝ๐—ผ๐˜€๐—ฎ๐—น๐˜€?

๐Ÿ’ญ The SFDR compliance headache is not going away:ย 

The EU seems determined to keep 'raising the bar' for any fund marketing itself as 'sustainable'.

๐Ÿ’ญ Investors' need for agile software that can keep up with increasing disclosure requirements is going to increase.

๐Ÿ’ญ Our argument about ๐€๐ซ๐ญ๐ข๐œ๐ฅ๐ž ๐Ÿด+ (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 "๐˜ต๐˜ฉ๐˜ช๐˜ด ๐˜ง๐˜ถ๐˜ฏ๐˜ฅ ๐˜ฎ๐˜ช๐˜จ๐˜ฉ๐˜ต ๐˜ฉ๐˜ข๐˜ท๐˜ฆ ๐˜ข๐˜ฏ ๐˜ˆ๐˜ณ๐˜ต๐˜ช๐˜ค๐˜ญ๐˜ฆ 8 ๐˜ญ๐˜ข๐˜ฃ๐˜ฆ๐˜ญ, ๐˜ฃ๐˜ถ๐˜ต ๐˜ช๐˜ต ๐˜ช๐˜ด ๐˜ฏ๐˜ฐ๐˜ต ๐˜ช๐˜ฏ ๐˜ข๐˜ฏ๐˜บ ๐˜ฎ๐˜ฆ๐˜ข๐˜ฏ๐˜ช๐˜ฏ๐˜จ๐˜ง๐˜ถ๐˜ญ ๐˜ธ๐˜ข๐˜บ ๐˜ข ๐˜ด๐˜ถ๐˜ด๐˜ต๐˜ข๐˜ช๐˜ฏ๐˜ข๐˜ฃ๐˜ญ๐˜ฆ ๐˜ง๐˜ถ๐˜ฏ๐˜ฅ".

๐—ช๐—ต๐—ฎ๐˜ ๐—ฑ๐—ผ ๐˜†๐—ผ๐˜‚ ๐˜๐—ต๐—ถ๐—ป๐—ธ?

Want to share your thoughts? Email us viaย contact@integrumesg.comย or fill in this formย HEREย to book in a demonstration on our own approach to ESG analysis.

ยฉ 2023 INTEGRUM ESG. All rights reserved. Integrum and Geosphere are trading names of Integrum ESG Limited.