The European Union has delayed the second phase of The Sustainable Finance Disclosure Regulation (SFDR) by six months.
The first phase of the legislation was introduced in March this year, requiring asset managers to publish both pre-contractual statements (e.g. in a fund’s prospectus) and disclosure statements on their websites about which of their products fall into three distinct categories. These are:
- Article 9 funds: those funds that specifically have sustainable goals as their objective (for example investing in companies whose goal it is to reduce carbon emissions).
- Article 8 funds: those funds that promote E or S characteristics but do not have them as the overarching objective.
- Article 6 funds: funds that are not promoted as having ESG factors or objectives.
Phase two of the ruling would require additional detailed entity and product level 2 disclosures, including the “principal adverse sustainability impacts statement”. This was set to apply from 1 January 2022 but has been pushed back six months.
A letter from John Berrigan, head of the European Commission’s financial services unit, reportedly said in a letter to the European Parliament that a further delay was needed to avoid a last minute rush for market participants.
“Due to the length and technical detail of those regulatory technical standards … we deem it necessary to facilitate the smooth implementation of the standards by product manufacturers, financial advisers and supervisors,” Berrigan said in his letter.
“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,” Berrigan added.
Volker Lainer, VP of product management and regulatory affairs at GoldenSource commented: “The delay provides some extra breathing room. It was always a tall order to expect the market to be ready with their ESG data set-up for phase two at the same time as the EU Taxonomy requirements.
“This is because SFDR requires firms to pool significant amounts of ESG data from a wide range of data providers. Also, firms are required to source data on incredibly niche metrics a difficult process that will take time to complete and subsequently manage into a usable format. The delay provides market participants with an opportunity to better look at SFDR and the EU taxonomy in conjunction so that they have a coherent implementation of these independent but related regulatory requirements.”
G20 finance ministers commit to TCFD
Meanwhile, Finance Ministers and Central Bank Governors (FMCBGs) of the G20 met over the weekend and reinforced their nations commitment to the Taskforce for Climate-related Financial Disclosures (TCFD).
In a statement after the meetings the leaders said “tackling climate change remains an urgent priority” and to tackle this international collaboration is needed. It said the Financial Stability Board (FSB) will work with other relevant international initiatives to create the G20 Sustainable Finance Working Group (SFWG), which will deliver a multi-year G20 Roadmap for sustainable finance.
“Climate risks represent a concrete threat for growth and prosperity. For this reason, the G20 agreed to systematically integrate them into the G20 global risk monitoring and preparedness and into future policy discussions.”
The statement continued the FMCBGs had an in-depth exchange on the “most effective policy mix to shape just transitions towards a more prosperous, sustainable and inclusive economy.”
They agreed policies aross the nations should include a vast set of tools, such as “green investments in sustainable infrastructure and innovative technologies that promote decarbonisation and circular economy”.
It also anticipated that mechanisms to support clean energy sources, such as carbon pricing should be included.
There was also emphasis on “the poorest and most vulnerable” with the G20 FMCBGs committing to supporting developing countries’ mitigation efforts against climate change to ensure “all countries take part to the transition”.
The SFWG will present their findings to FMCBGs at their October meeting and outline the future G20 work on climate and sustainability issues.