Today marks the one-year anniversary since the EU’s Sustainable Finance Disclosure Regulation (SFDR) came into force on 10 March 2021.
As a critical component of the EU’s sustainability agenda, the intent of the regime is to increase transparency on sustainability between financial institutions, investors, and other market players.
SFDR Level 1 requires financial institutions within the EU—or those marketing to EU investors—to make principles-based disclosures on ESG-related activity. Firms must report not only on the sectors they invest in, but also on their portfolio companies. Further, SFDR disclosures are not limited to marketing materials. They must be made public on financial institutions’ websites alongside a sustainability risk policy.
Since March 2021, more detailed Level 2 requirements (known as ‘SFDR RTS’) have been formulated. As of 1 January 2022, respective firms in scope must include detailed pre-contractual and annual reporting disclosures based on the EU’s Regulatory Technical Standards (RTS). While the application date of the RTS has been pushed back to 1 January 2023, market participants must still make best-effort disclosures in their 2022 annual reporting.
Put simply, in scope firms marketing to EU investors had to make sustainability promises last year in order to comply. This year, those notes are coming due. Firms must make periodic and ongoing disclosures on how they’ve performed against those promises.
The RTS is still in draft form and won’t formally come into effect until 1 January 2023. In the meantime, the draft RTS is a helpful guideline toward this year’s best-effort disclosures.
Unsure where to begin with the new disclosure requirements? You’re not alone.
Even with the draft RTS as a guide, firms are encountering roadblocks—particularly because portfolio companies must also participate. It’s exceptionally difficult to report on your goals when portfolio companies don’t have the required information readily available.
If you aren’t already in the process of collecting that data, it will be even more difficult now that 2021 has come to a close. Most firms have just a few short months to collate data and write updates for their annual reporting.
In an unprecedented era of public scrutiny, keeping abreast of SFDR requirements is more important than ever. If you’re unclear if this applies to you, behind schedule, stuck or unsure how to proceed, now is the time to consult an expert. Teams of experienced professionals (like ours at IQ-EQ) can help draft and even collect disclosure data, saving you countless hours of strain.
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Download our SFDR Factsheet for an overview of the SFDR services offered by IQ-EQ. To discuss your requirements and find out more about how IQ-EQ could help, please get in touch using my contact details below.