Aktualizacja i uzupełnienie Q&A dotyczących SFDR

The Polish KNF has posted an update to Q&As with regards to SFDR. Most of the questions stem from supervised entities. In November, 28 some questions have been updated (questions 10 and 15) and new questions have been answered (questions 19 – 28).
Question 10
The answer to this question has been updated with a reference to Article 20 (5) and Article 21 (5) DelReg (EU) 2022/1288
Question 15
This question should be now read with DelReg (EU) 2022/1288, especially Articles 20 and 21.
Question 19: How to determine (in practice) whether the risk on sustainability development has an impact on a financial product return in case of investment funds, when the share in the fund is small and insignificant, specifically when the fund invests in listed companies?
Answer: In case the shares are small and insignificant, they can be grouped by sectors and assessed on that basis, or based on their exposure from their physical location.
Question 20: For products mentioned in Articles 8 or 9 of SFDR, is there a minimum share of firms that must deliver information to assess their compliance with these articles?
Answer: Formally, a minimum share requirement does not exist, however it is necessary to justify why a certain product is sustainable. While Article 8 is somewhat tolerant, Article 9 forbids the lack of information due to the DSNH requirement. It is also important to pay close attention to missing or incomplete information as it could be related to greenwashing. The following aspects must be disclosed (on the website, among other sources):
– potential lack of information on sources or methodologies mentioned in Articles 33 and 46 DelReg (EU) 2022/1288
– justification why the lack of such information will not lead to a limitation in assessing the ESG aspects
– percentage of estimated data (Article 32 (d) and Article 45 (d) DelReg (EU) 2022/1288)
Question 21: Can investment funds qualified as products according to Article 8 SFDR partially invest in non-sustainable companies such as from the petrol industry?
Answer: Legally there is no prohibition to do so, however it is important to consider that although Article 8 is somewhat lenient, the products should still help move towards sustainability goals. All products must be justified as either sustainable or helping to move towards sustainability.
Question 22: What happens if a created product cannot be justified as sustainable in the periodic reporting as per Article 11 SFDR? Will it be necessary to discontinue the classification into Article 8 or 9? What are other consequences?
Answer: It is necessary to stop promoting such products as sustainable products and accept that the investment strategy did not ensure moving towards sustainability. The consequence is that a client who has already purchased the product, has a product in their portfolio that does not match their preferences. In case of insurance products, one must comply with Article 11 of Insurance Distribution Directive, which describes the process of approving and functioning of an insurance product, and DelReg (UE) 2017/2358 which describe the requirements for creating such a product.
Question 23: Does an investment product (e.g. an index fund) that fulfills all criteria according to Article 8 or 9, have to be qualified as a product under Article 8 or 9, or is this classification a voluntary decision?
Answer: Passive products which replicate index funds classified as a product under Article 8 or 9 SFDR should also be classified as such.
Question 24: How to assess government bonds in relation to Articles 6, 8 and 9 SFDR?
Answer: At the moment, issuers of government bonds are not required to disclose information on the products‘ impact on ESG. Therefore, investments in government bonds should not be automatically classified as green.
Question 25: How to assess the issuance of green bonds according to Articles 8 or 9 SFDR if the issuer’s activities are not classified as sustainable while the income from emissions is invested into activities that help moving towards sustainability?
Answer: Bonds are not financial products within SFDR therefore they will not be subject to classification. Consequently, products that invest in bonds will be subject to SFDR. An issuer’s activities will not be subject to SFDR but rather to NFRD/CSRD or Article 8 of the Taxonomy Regulation.
Question 26: Information mentioned in Article 11 SFDR must be disclosed in periodic reporting. How does this requirement apply to variables in the portfolio? Should the values be disclosed as per year-end?
Answer: The entire reporting period must be taken into consideration while disclosing such information.
Question 27: Is the risk that some companies will not publish data required to assess the indicators resulting from Article 11 SFDR high? How to proceed in such situations – should only X% of the portfolio be assessed?
Answer: Publishing data to assess indicators is up to the market participant. If they are not able to provide indicators that justify the sustainability according to Articles 8 or 9 SFDR, they will not be able to verify the correctness of this classification. Consequently, as the classification under Articles 8 or 9 SFDR is voluntary, such products should not fall under this classification.
Question 28: How to present the results of assessing the impact of sustainability risks on the return on financial products? Are general terms such as „low“, „medium“, „high“ accepted?
Answer: The results assessing the impact of sustainability risks must not only be presented but also justified to the client. General terms can be accepted as long as they are consistent and the naming convention can be justified.
Question 29: Where should sustainability information be disclosed in case a PPE takes the form of an investment fund (where PPE is not classified as Article 8 or 9 SFDR)?
Answer: If PPE is not a product under Article 8 or 9 SFDR, it is not mandatory to disclose such information on the website. It is however necessary to inform the client about the classification to Article 6 or 7 SFDR. If throughout the duration of PPE, the investment fund has been changed (e.g. from non-sustainable to sustainable), it is necessary to inform the employee.
Question 30: Are pension funds subject to SFDR?
Answer: Yes, according to Article 2(8) SFDR.
Question 31: How to assess AI in the context of product classification under Article 8 SFDR?
Answer: Firstly, it is important to disclose positive as well as negative (AI) impacts on environmental and social aspects. Secondly, disclosing AI might have the client believing that the product is not actually sustainable. Therefore, products that consider AI, are automatically classified as products under Article 8 SFDR.
Question 32: How to estimate ESG components in case of derivatives, where the derivative estimates the values of other products, such as insurances with insurance capital funds (UFK) where indices are the investment?
Answer: Please use lookthrough so that the underlying investment can be assessed. In case this is not possible, it can be simplified, such as analysing a big equity group or assessing those with the largest share within the index.
Question 33: How to assess sustainability in case of portfolios managed by investment firms, where derivatives are used?
Answer: Investing in derivatives does not mean investing in measurable sustainable products like in case of equities or bonds, and generally cannot influence the portfolio’s ESG goals.
DelReg (EU) 2022/1288 describes disclosure requirements on using derivatives with regards to ESG goals.
Question 34: Are insurance products from Tier 1 Group 1 (not Group 3) are subject to SFDR?
Answer: Not all life insurance products can be classified as an investment product under SFDR. The latter covers life insurance that provides a maturity or settlement value where that maturity or settlement value is wholly or partially exposed, directly, or indirectly, to market fluctuations.
Question 35: Does a life insurance contract that is related to an insurance capital fund (the Agreement) have to be classified as a product in accordance with Article 8 SFDR if: 1. The agreement will enable investing in various insurance capital funds (UFK), 2. at least one UFK will invest 100% of the funds in an investment fund that promotes, among others, an environmental or social aspect (i.e. the investment fund is classified under Article 8 SFDR) , 3. Apart from the mere possibility of investing in investment funds referred to in point 2, the Agreement does not promote the environmental or social aspect in any way?
Answer: The UFK product would have to be classified under Article 8 SFDR.
Question 36: Can an insurance company that:
+ outsources management to an external manager or
+ directly relies on
– investment funds (single funds) as part of a product that promotes an environmental or
– social aspect (Article 8 SFDR) or
– a product that aims to is a sustainable investment (Article 9 SFDR)
rely on the disclosures of these managers to meet the requirements of Articles 8 and 9 of SFDR?
Answer: Disclosure of UFK products is mandatory as per DelReg (EU) 2022/1288. It should be complete on the financial product level and can be a reference to the investment funds‘ internet website in order to call up the ESG information of that investment fund.
Question 37: An UFK invests 100% of its assets in an investment fund under Article 8 SFDR. Does the UFK itself automatically classify as a product under Article 8 SFDR or is this voluntary and it can classify itself as under Article 6?
Answer: In case of such „inheritance“, the UFK is automatically a product under Article 8 SFDR and must disclose relevant information. Nevertheless, the disclosure requirements under Article 6 SFDR are still mandatory.
Question 38: How to assess the percentage of investments in environmentally sustainable business activities when the insurance contract offers many UFK, only some of them promote environmentally sustainable activities, and the decision on which UFK to invest in is made by the client (the client can change these UFK while the contract is in place)?
Answer: The level of sustainable investments should be assessed based on DelReg (EU) 2022/1288.