It comes after the Central Bank confirmed that it would open a fast-track approval process for fund document updates before SFDR Level 2 measures come into force on 1 January 2023. Funds will have until 1 December 2022 to file relevant documents to the Bank, which is expected to issue guidance on the parameters of the fast-track process in coming weeks.
Gayle Bowen of Pinsent Masons said: “Managers now need to prepare for the December deadline as a matter of urgency. The Central Bank has indicated that it will conduct inspections of disclosures and will expect managers to have considered and adopted the Level 2 measures. Funds will need to be able to stand over any statements made in their offering documents.” Bowen added that funds still faced uncertainties over how to finalise documents ahead of the deadline.
The Central Bank’s confirmation coincided with the European Supervisory Authorities (ESAs) submitting a series of questions to the European Commission about the SFDR. The questions (4 pages / 171KB PDF) concern the interpretation of key aspects of the regulation, including how the definition of “sustainable investments” under Article 2(17) will be applied to investments in funding instruments that do not specify the use of proceeds. The ESAs asked whether a company that reports 20% of its economic activities as contributing to environmental or social objectives would be categorised as a sustainable investment under the SFDR.
The Commission was asked to clarify how it interpreted carbon emissions reductions and other benchmark questions in Article 9(3) as well as the definition of “consider” in Article 7(1)(a) – which requires an explanation of whether and how a financial product “considers principal adverse impacts” on sustainability factors. The ESAs also wanted more information on the application of the 500 employee principal adverse impacts (PAI) threshold and the frequency of periodic disclosure for portfolio management services.
Áine Ní Riain of Pinsent Masons said: “The Central Bank’s confirmation that the fast-track would be open until 1 December is very welcome and firms will be pleased that they’ve opted for a later date than some other EU regulators. But when – and how – the Commission responds to the ESA’s queries will be a concern. The questions cover some fundamental aspects of the SFDR’s application and could have a significant bearing on the documents that need to be finalised ahead of the Central Bank’s December deadline.”
She added: “So, while the ESA’s queries are valid and the Commission’s clarifications are needed, they could be at odds with managers’ present interpretations of the SFDR – forcing managers to revisit their disclosures with little time to spare.”