ESAs propose amendments to extend and simplify sustainability disclosures

The three European Supervisory Authorities (ESAs), namely the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), have proposed amendments to the Delegated Regulation of the Sustainable Finance Disclosure Regulation (SFDR) in a Joint Consultation Paper: Review of SFDR Delegated Regulation regarding PAI and financial product disclosures: Draft regulatory technical standards with regard to the content, methodologies and presentation of sustainability disclosures pursuant to Article 2a(3), 4(6), 4(7), 8(3), 8(4), 9(5), 9(6), 10(2), 11(4) and 11(5) of Regulation (EU) 2019/2088. The proposed amendments aim to address issues that have arisen since the introduction of SFDR.
As a reminder, the ESAs received a mandate from the European Commission in April 2022 to review and revise the Regulatory Technical Standards laid down in the SFDR Delegated Regulation. The ESAs informed the Commission on 26 October 2022 that they will deliver the Final Report under the mandate up to a six month later than the original deadline of 28 April 2023, hence by the end of October 2023.
The ESAs are now seeking feedback on the proposed amendments that include extending the list of universal social indicators for disclosing the principal adverse impacts of investment decisions on the environment and society. The list will include earnings from non-cooperative tax jurisdictions or interference in the formation of trade unions. They also aim to refine the content of other indicators for adverse impacts, applicable methodologies, formulae for calculation, and presentation of information. The proposed amendments will also include product disclosures on decarbonisation targets, including intermediate targets, the level of ambition, and how the target will be achieved.
Furthermore, the ESAs propose to improve the disclosures on how sustainable investments „do not significantly harm“ the environment and society, simplify pre-contractual and periodic disclosure templates for financial products, and make other technical adjustments concerning the treatment of derivatives, the definition of equivalent information, and provisions for financial products with underlying investment options.
The proposed amendments aim to broaden the disclosure framework and address some technical issues that have emerged since the SFDR was originally agreed upon. These changes will enable financial institutions to better understand the environmental and social impacts of their investments and make informed investment decisions that contribute to the sustainable development goals.
Stakeholders can provide feedback on the proposed amendments until 4 July 2023, using the response form available on the ESMA website. The ESAs will conduct a consumer testing on this proposal. After considering the comments received, the ESAs will prepare a Final Report and submit it to the European Commission.