European Supervisory Authorities propose changes to SFDR

The three European Supervisory Authorities (ESAs) – the European Insurance and Occupational Pensions Authority (EIOPA), the European Securities and Markets Authority (ESMA), and the European Banking Authority (EBA) – have published a consultation paper with amendments to the Delegated Regulation of the Sustainable Finance Disclosure Regulation (SFDR), proposing an extended list of social indicators and simpler templates for financial products, among other suggestions.

The ESAs are proposing changes to the disclosure framework to address issues that have emerged since the introduction of the regulation. The authorities are seeking feedback on the amendments which propose:

• extending the list of universal social indicators for the disclosure of the principal adverse impacts of investment decisions on the environment and society, such as earnings from non-cooperative tax jurisdictions or interference in the formation of trade unions;
• refining the content of other indicators for adverse impacts and their respective definitions, applicable methodologies, formulae for calculation as well as the presentation of the share of information derived directly from investee companies, sovereigns, supranationals or real estate assets; and
• adding product disclosures regarding decarbonisation targets, including intermediate targets, the level of ambition and how the target will be achieved.

Additionally, the authorities propose further technical revisions to the SFDR Delegated Regulation by:

• improving the disclosures on how sustainable investments “do not significantly harm” the environment and society;
• simplifying pre-contractual and periodic disclosure templates for financial products; and
• making other technical adjustments concerning, among others, the treatment of derivatives, the definition of equivalent information, and provisions for financial products with underlying investment options.

The Joint Committee of the ESAs received a mandate from the European Commission on 28 April 2022 to review and revise the Regulatory Technical Standards laid down in the SFDR Delegated Regulation. The ESAs informed the Commission in October 2022 that they would deliver a final report under the mandate by the end of October 2023.

The ESAs’ consultation is opne for comments until 4 July 2023 via an online response form.

The authorities will organise a joint public hearing and targeted consumer testing during the consultation period. After considering the comments received, the ESAs will prepare a final report and submit it to the European Commission.

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