Regulatory Update: Amendments to the RTS of the SFDR

Mini podcast December 15, 2023



The European institutions continue to undertake major surgery on the SFDR. On the fourth of December, the European supervisory authorities -or ESAs- put forward their amendments to the regulatory technical standards of the sustainable finance disclosure regulation -or SFDR– and the principal adverse impact indicators -or PAIs- that sit under them. 

Three main headlines:

  1. Firstly, we have three new mandatory PAIs, a number of new optional PAIs and we also have a number of amendments to the methodologies that underpin some of our existing PAIs.
  2. Number two. We have got further clarifications on many of the technical requirements. This includes changes in relation to the treatment of derivatives, the use of estimates, and tweaks to the do no significant harm or DNSH including: Firstly requiring financial market participants to disclose numerical thresholds for when a PAI has been breached. And secondly, the formalization of a “safe harbor” for investments that pass DNSH for taxonomy to be read across the SFDR and vice versa.
  3. And finally, thirdly, we have an updated template or updated templates that will make the most salient information more accessible to retail investors, via a dashboard and include a greater detail for products that pursue an emission reduction strategy.

The European Commission now has three months to review the suggestions before deciding whether to endorse them.

We assume this will happen without any issue and await further news on when the changes will apply. We do not expect the changes to apply immediately and expect some transition period.

We nevertheless suggest investors watch this space closely for news on when this will come into force. At the same time, to keep us all on our toes, we have the European Commission undertaking its own review of the SFDR level 1 requirements. This was launched in September 2023, although the changes will likely take a number of years to come into effect.

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