Industry Updates

European Union delays SFDR ‘level two’ implementation by six months

All regulatory standards will now be applied in a single delegated act from July 2022

Jamie Gordon

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The European Commission has once again delayed the second phase of the Sustainable Finance Disclosure Regulation (SFDR) by half a year to July 2022 due to “length and technicalities” involved in the directive.

In a letter, John Berrigan, deputy director-general for financial stability, financial services and capital markets union at the European Commission, said the delay would ensure a “smooth” implementation of the regulation.

Initially introduced on 10 March this year, SFDR’s function is to make disclosure of financial products’ performance on environmental, social and governance (ESG) issues compulsory for asset managers, as part of a wider push by the EU to leverage the power of capital markets to meet its emissions reduction targets.

SFDR ‘level two’ obligations require companies to report on 18 mandatory principle adverse impacts statements (PAIS) as well as other voluntary areas which go as far as the risks to a products’ valuation due to environmental impacts.

Asset managers were required to apply phase two standards despite detailed guidance on how this should be done being pushed back until January 2022 with regulators themselves needing more time.

Given the complexity of the new body of regulation, Berrigan’s letter to the European Parliament said an additional delay of six months would be necessary to prevent a frantic dash to the finish by asset managers.

“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’s letter 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.”

Previously,ETF Streamspoke to industry participants who were concerned asset managers who have been tempted to label their products as SFDR Article 8 or 9 compliant to attract investor interest might come unstuck.

For instance, while progress has been made on data collection relevant to products’ environmental impacts, sourcing data on metrics such as ozone depletion, high water stress and land degradation will be much more difficult to source – especially for smaller firms.

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