The European Supervisory Authorities have issued a consultation paper on the content and presentation of certain Taxonomy-related disclosures under the Sustainable Finance Disclosure Regulation.
Taxonomy Regulation: Additional sustainability disclosures for firms
Under the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation, where a financial product promotes environmental characteristics (in the case of a product falling within Article 8 SFDR) or invests in an economic activity that contributes to an environmental objective (in the case of a product falling within Article 9 SFDR), additional disclosures based on the Taxonomy Regulation must be made in pre-contractual information and periodic reports.
The disclosures based on the Taxonomy Regulation are in respect of the following environmental objectives: climate change mitigation; climate change adaptation; the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control and the protection and restoration of biodiversity and ecosystems.
Very broadly, the proposed Regulatory Technical Standards (RTS) in the consultation amend the draft Commission Delegated Regulation on the content, methodologies and presentation of disclosures (including the mandatory templates) under SFDR (SFDR Delegated Regulation). We discussed the SFDR Delegated Regulation in our briefing in February 2021. The RTS expand the disclosures required to reflect the provisions of the Taxonomy Regulation. There has also been some minor reworking of parts of the SFDR Delegated Regulation.
If adopted, the requirements will come into force as from 1 January 2022 in respect of climate change mitigation and climate change adaptation and 1 January 2023 in respect of the remaining environmental objectives.
Annexes II to V of the SFDR Delegated Regulation are also replaced with new updated Annexes which include new provisions to be included in the pre-contractual disclosures and periodic reports to reflect the additional information required under the RTS.
The consultation closes on 12 May 2021 with a final report with draft RTS expected by late June or early July 2021.
The flexibility on making disclosures for environmentally sustainable economic activities will be welcome for financial participants particularly given the large degree of concern around making principal adverse impact disclosures. However, the other additional disclosures will require a large degree of information gathering and analysis for financial participants.
Financial participants should also give some thought as to whether they should start considering this now, particularly for the pre-contractual disclosures should they be implemented in the manner envisaged in the consultation, given that they will need to be in a position to comply with the requirements in respect of climate change mitigation and climate change adaptation by the end of the year.
We have been following the EU's sustainability initiatives closely and have been instrumental in industry lobbying efforts. We have considerable expertise in the new rules and their impact for firms. If you would like to discuss this further then please contact any of the persons below or your usual Travers Smith contact.