Application of Regulation (EU) 2019/2088 on the sustainability-related disclosures in the financial services sector and related technical standards

The CSSF would like to bring to the attention of financial market participants and financial advisers that the European Commission (hereinafter the “Commission”) confirmed the application dates of Regulation (EU) 2019/2088 on the sustainability-related disclosures in the financial services sector (“SFDR”), which lays down harmonised rules for financial market participants and financial advisers on transparency with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability‐related information with respect to financial products.

In this context, the Commission has addressed a letter to the ESA’s on 20 October 2020 concerning the application of the SFDR and its related technical standards (https://www.esma.europa.eu/sites/default/files/library/eba_bs_2020_633_letter_to_the_esas_on_sfdr.pdf).

In this letter, the Commission states that the co-legislators agreed in March 2019 on an ambitious timeframe for the SFDR, requiring the joint development by EIOPA, ESMA and EBA of most of the draft regulatory technical standards by 30 December 2020 and the application of the SFDR’s provisions from 10 March 2021. It also informs about the fact that the regulatory technical standards will not be available by the end of December as initially foreseen, as the unprecedented economic and market stress caused by the COVID-19 crisis has necessitated an extension of the deadline for the public consultation on said draft regulatory technical standards.

The Commission also reminds that the regulatory technical standards aim to specify the detailed requirements on the content, methodologies and presentation of sustainability-related disclosures which shall facilitate further convergence across the financial sector and comparability for end-investors.

Nonetheless, in terms of substance, the Commission considers that the application of the SFDR is not conditional on the formal adoption and entry into force or application of the regulatory technical standards as it lays down at Level 1 general principles of sustainability-related disclosures in distinct areas, such as sustainability risks, the promotion of environmental and social characteristics or sustainable investments, and adverse sustainability impacts.

The Commission is of the opinion that the SFDR requires transparency and reminds that no further regulatory technical standards are foreseen for disclosure obligations on the integration of sustainability risks at product level, or sustainability risks policies and remuneration policies at entity level. Moreover, with regard to the integration of sustainability risks in the investment decision‐making process, financial market participants must, in accordance with the applicable sectoral legislation, already consider sustainability risks in their internal processes.

In the context of financial products that promote environmental and social characteristics or have a sustainable investment as it objective, the Commission writes that: ”As regards financial products that qualify under Articles 8 and 9 of the Regulation, in accordance with applicable sectoral legislation, product manufacturers must already describe in the product documentation how the levels of sustainability are achieved. This means that the manufacturers must comply with the disclosure principles set out in Articles 8 and 9 of the Regulation.

In relation to transparency of adverse sustainability impacts, numerous financial market participants currently comply with the non-financial reporting requirements under Directive 2013/34/EU or adhere to international standards and might consider using that information. Even without the full regulatory technical standards, there are no impediments to financial market participants and financial advisers complying with the Level 1 requirements laid down in the Regulation.”

As according to the letter of the Commission all application dates are being maintained as laid down by the SFDR with effect from 2021, the financial market participants and financial advisers subject to the SFDR will need to comply with its high level and principle-based requirements as from 10 March 2021, even though the regulatory technical standards will become applicable at a later stage. It has not yet been clarified when the regulatory technical standards will become applicable.

Financial market participants as per the SFDR notably include the following entities established in Luxembourg subject to CSSF supervision: alternative investment fund managers (AIFMs), UCITS management companies, managers of a qualifying venture capital fund or a qualifying social entrepreneurship fund, credit institutions or investment firms which provide portfolio management, and institutions for occupational retirement provision (IORP).

Financial advisers as per the SFDR notably include the following entities established in Luxembourg subject to CSSF supervision: credit institutions, investment firms, AIFMs, and UCITS management companies which provide investment advice.