EUROPE: Updated Joint ESA Supervisory Statement on the application of the Sustainable Finance Disclosure Regulation

Friday March 25 2022

The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have updated their joint supervisory statement on the application of the Sustainable Finance Disclosure Regulation (SFDR). This includes a new timeline, expectations about the explicit quantification of the product disclosures under Article 5 and 6 of the Taxonomy Regulation, and the use of estimates.

The supervisory statement aims to promote an effective and consistent application and national supervision of the SFDR, thus creating a level playing field and protecting investors.

The ESAs recommend that national competent authorities and market participants use the current interim period from 10 March 2021 until 1 January 2023 to prepare for the application of the forthcoming Commission Delegated Regulation containing the Regulatory Technical Standards (RTS) while also applying the relevant measures of SFDR and the Taxonomy Regulation according to the relevant application dates outlined in the supervisory statement.

Disclosures under Article 5 and 6 of the Taxonomy Regulation

The ESAs clarify that, under Article 5 and 6 of the Taxonomy Regulation, the supervisory expectation for disclosures during the interim period is that financial market participants should provide an explicit quantification, through the numerical disclosure of the percentage, of the extent to which investments underlying the financial product are taxonomy-aligned.

In addition, while estimates should not be used, where information is not readily available from investee companies’ public disclosures, financial market participants may rely on equivalent information on taxonomy-alignment obtained directly from investee companies or from third party providers.

This updated statement replaces the initial joint supervisory statement, which was released in February 2021.

Next steps

The European Commission sent on 8 July 2021 a letter to the European Parliament and Council announcing that it intends to bundle all 13 RTS under SFDR into a single delegated act and to defer the application of 1 January 2022 by six months to 1 July 2022. The Commission sent another letter on 25 November 2021 announcing that the application date of the RTS would be 1 January 2023.

The European Commission is required to endorse the ESAs draft RTS within 3 months of the publication. Subject to the non-objection by the European Parliament and Council of the European Union – within 3 months following the Commission’s endorsement – the RTS will be adopted by the Commission by means of a delegated regulation.

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