This article provides an overview of sustainable finance-related disclosure obligations (SFDR = Sustainable Finance Disclosure Regulation) for financial market participants (FMPs) and financial advisers (FAs) pursuant to Regulation (EU) 2088/2019 (Disclosure Regulation) and Regulation (EU) 2020/852 (Taxonomy Regulation) (No liability assumed). The aim of this regulation is to reduce information asymmetries in the relationships between clients and contractors with regard to the inclusion of sustainability risks, the consideration of adverse sustainability impacts, the advertising of environmental or social features, and with regard to sustainable investments by requiring financial market participants and financial advisors to provide pre-contractual information and ongoing disclosures to end-investors when they act as contractors on behalf of those end-investors (clients).

Art. 3 Disclosure Regulation: Transparency of sustainability risk policies

Company-related disclosure

FMP: Strategies for dealing with sustainability risks in their investment decisions            

FA: strategies for dealing with sustainability risks in their investment advisory or Insurance consultancy activities                   

Where: Publication on website 

Start of the regulation: 10th March 2021

Art. 4 Disclosure Regulation: Transparency of adverse sustainability impacts at entity level

Company-related disclosure

FMP and FA: Information on adverse sustainability impacts at the level of the company (so-called “Principal adverse sustainability impacts statement”)       

Where: Publication on website 

Start of the SFDR: 10th March 2021 (comply-or-explain) or mandatory for FMPs with more than 500 employees (Art. 4(3) and 4(4)) Disclosure Regulation): 30 June 2021

Art. 5 Disclosure Regulation: Transparency of remuneration policies in relation to the integration of sustainability risks

Company-related disclosure

FMP and FA: Information on the inclusion of sustainability risks in the remuneration policy              

Where: Publication on website 

Start of the regulation: 10th March 2021

Art. 6 Disclosure Regulation: Transparency of the integration of sustainability risks

Product related disclosure

FMP and FA: Consideration of Sustainability risks at product level           

Where: In pre-contractual information  

Start of the regulation: 10th March 2021

Art. 7 Disclosure Regulation: Transparency of adverse sustainability impacts at financial product level

Product related disclosure

FMP: Information on the most important adverse impacts on sustainability factors (PAI =”principal adverse impacts”) at product level   

Where: In pre-contractual information and regular reports         

Start of the regulation: no later than 30th December 2022

Art. 8 Disclosure Regulation in connection with. Art. 6 Taxonomy Regulation: Transparency of the promotion of environmental or social characteristics in pre‐contractual disclosures

Product related disclosure

FMP: Pre-contractual Information requirements when advertising ecological or social features             

Where: Pre-contractual information duties        

Start of the regulation: 10th March 2021 (01.01.2022 for the taxonomy related information of the first both (climate change mitigation and climate change adaptation) and 01.01.2023 with regard to the other environmental objectives (the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; the protection and restoration of biodiversity and ecosystems))

Art. 9 Disclosure Regulation in connection with. Art. 5 Taxonomy Regulation: Transparency of sustainable investments in pre‐contractual disclosures

Product related disclosure

FMP: Pre-contractual Information requirements for sustainable investments      

Where: Pre-contractual information obligations

Start of the SFDR: 10th March 2021 (01.01.2022 for the taxonomy related information of the first both (climate change mitigation and climate change adaptation) and 01.01.2023 with regard to the other environmental objectives (the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; the protection and restoration of biodiversity and ecosystems))

Art. 10 Disclosure Regulation: Transparency of the promotion of environmental or social characteristics and of sustainable investments on websites

Product related disclosure

FMP: Publications on Internet sites when advertising environmental or social characteristics and sustainable investments (for “Article 8” and “Article 9” products)    

Where: Publication on website 

Start of the regulation: 10th March 2021 (it can be assumed that Art. 10 para. 1 lit. d Disclosure Regulation will only apply from 01.01.2022 onwards)

Art. 11 Disclosure Regulation: Transparency of the promotion of environmental or social characteristics and of sustainable investments in periodic reports

Product related disclosure

FMP: Periodic reporting obligations for the application of environmental or social features and for sustainable investments

Where: in regular reports           

Start of the SFDR: 1st January 2022 (it can be assumed that Art. 11 para. 1 lit. a and b of the Disclosure Regulation regarding the environmental objectives c)-f) of Article 9 of the Taxonomy Regulation (i.e. the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; the protection and restoration of biodiversity and ecosystems) will only apply from 01.01.2023)

Art. 12 Disclosure Regulation: Review of disclosures

Company related and product related disclosure             

FMP and FA: Verification of the information published (ensuring that the information is always are up to date)  

Where: published information  

Start of the regulation: 10th March 2021

Art. 13 Disclosure Regulation: Marketing communications

Company related and product related disclosure             

FMP and FA: Marketing communications must be in accordance with the published information is available

Where: Coherence of marketing communications with the compulsory information according to the Disclosure Regulation 

Start of the regulation: 10th March 2021

Art. 7 Taxonomy Regulation: Transparency of other financial products in pre-contractual disclosures and in periodic reports

Product related disclosure

FMP: Declaration for financial products not covered by Art. 8 par. 1 or Art. 9 par. 1, 2 or 3 SFDR (Transparency in pre-contractual information and regular reports at other financial products)           

Where: pre-contractual information and regular reports             

Start of the regulation: 1st January 2022

Conclusion

The SFDR (Sustainable Finance Disclosure Regulation) has put reporting obligations on financial companies since 10th of March 2021. These obligations are widened over the next year on company and product related level. The sustainable finance information has often to be foreseen on pre-contractual disclosures for customers. Contact us to support you on the SFDR journey.

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Georg Tichy

Georg Tichy is a management consultant in Europe, focusing on top-management consultancy, projectmanagement, corporate reporting and fundingsupport. Dr. Georg Tichy is also trainer, lecturer at university and advisor on current economic issues. Contact me or Book a Meeting