Sustainable finance: delay announced to SFDR Level 2

Out-Law News | 13 Jul 2021 | 1:35 pm | 1 min. read

Fund managers will have an additional six months to implement new regulatory technical standards under the EU’s Sustainable Finance Disclosure Regulation (SFDR), a senior EU policymaker has announced.

John Berrigan, the deputy director general in the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union, confirmed that 13 regulatory technical standards developed under the SFDR would now begin to apply from 1 July 2022 instead of 1 January 2022 as had been originally envisaged.

The SFDR requires fund managers to make a series of declarations and disclosures concerning the sustainability of the funds they manage. The regulation is designed to increase transparency over the impact funds and other financial products have on the environment, with a view to that driving investment decisions towards ‘greener’ industries, businesses and projects.

The SFDR provides for the development of regulatory technical standards to specify the disclosure requirements in detail. These anticipated standards have been colloquially referred to as ‘SFDR Level 2’. On 4 February this year, seven such draft standards were submitted to the Commission by the EU’s three supervisory authorities in financial services – the European Insurance and Occupational Pensions Authority (EIOPA), the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA). However, the Commission has still to finalise those standards, with Berrigan citing the “length and technical detail” of the documents as reasons for this.

A further six regulatory technical standards under the SFDR are currently in the process of being drafted by EIOPA, ESMA and the EBA. Some of the provisions are due to apply from 1 January 2022 and would also update provisions contained in the earlier seven draft standards. Berrigan has now said all 13 standards will be “bundled together” under the same deferred timeline.

“Due to the length and technical detail of those regulatory technical standards, the late submissions to the Commission, and envisaged amendments, we deem it necessary to facilitate the smooth implementation of the standards by product manufacturers, financial advisers and supervisors,” Berrigan said. “We therefore plan to bundle all 13 of the regulatory technical standards in a single delegated act and defer the dates of application of 1 January 2022 by six months to 1 July 2022.”

Gayle Bowen of Pinsent Masons, the law firm behind Out-Law, said: “The postponement of the Level 2 measures is a welcome development for managers and to some degree is an acknowledgement of the rushed and piecemeal implementation of the Level 1 SFDR requirements, which required managers to implement without the benefit of the more detailed Level 2 measures.  This will give managers more time to carefully and properly consider the implications of the Level 2 measures on their business and will hopefully lead to better and more transparent disclosures, which will be of benefit investors.”