Investment Management: Key Developments for Sustainability Disclosures

The European Supervisory Authorities (the “ESAs”) have issued a number of communications in respect of sustainability disclosures in quick succession. In this briefing, we highlight the key developments financial market participants (“FMPs”) should be aware of.

ESA Clarifications on draft RTS under SFDR

On 2 June 2022, the ESAs published their statement ‘Clarifications on the ESAs’ draft RTS under SFDR’ (here) (the “Statement”). The Statement is intended to provide clarification on key areas of the draft regulatory technical standards under the SFDR (the “draft RTS”)1. Key areas covered are principal adverse impact (“PAI”), financial product and ‘do no significant harm’ (“DNSH”) disclosures.

Clarifications in the Statement include:

  • that it is possible to use the PAI indicators to measure the environmental or social characteristics or the overall sustainable impact of the financial product and, for the sake of clarity, the ESAs include a table in the Statement with three possible uses of the PAI indicators at financial product level;
  • further detail on PAI calculation methodology. The ESAs note that several FMPs had questions about the calculation rules in the context of periodic disclosures of financial products;
  • detail on the look-through approach and investment instrument scope for PAI disclosures. The ESAs state that all investments, both direct and indirect, should be included in calculations to be made as part of the reporting on PAI of investment decisions;
  • clarifications on disclosures for direct and indirect investments in pre-contractual and periodic disclosures; and
  • guidance on adverse impact indicators, pre-contractual financial product disclosures, periodic financial product disclosures, taxonomy-related financial product disclosures, DNSH disclosures and disclosures for financial products with investment options.

European Commission replies to ESA SFDR/Taxonomy queries

On 26 May 2022, the ESAs published a response received from the European Commission (the “Commission”) in respect of queries raised on SFDR and the Taxonomy Regulation (here). The Commission response covers topics including:

  • the manner in which the SFDR applies to financial products made available to end investors before 10 March 2021 which continue to be made available after that date and those financial products which are no longer made available to end investors after that date;
  • whether FMPs which are below the threshold for PAI disclosures at entity level may consider PAI for a subset of financial products;
  • whether financial products within the scope of Article 8 and 9 of the SFDR are required to invest in companies with good governance; and
  • disclosure obligations for financial products within the scope of Article 8 and Article 9 of the SFDR under the Taxonomy Regulation, noting that this should be of particular interest to FMPs in light of recent Central Bank communication on this issue and the 24 March 2022 ESA ‘Updated Joint ESA Supervisory Statement on the application of the Sustainable Finance Disclosure Regulation’ (see our related briefing here).

Supervisory Briefing: Sustainability Risks and Disclosures in the area of Investment Management

On 31 May 2022, ESMA issued a supervisory briefing on ‘Sustainability risks and disclosures in the area of investment management’ (the “Briefing”) (here). While the Briefing is non-binding and directed at supervisors2, it provides a useful reference point for FMPs to anticipate the regulatory approach to assessing sustainability disclosures.

The Briefing includes guidance for supervision of fund documentation and marketing material and covers topics including verification by the supervisor of pre-contractual and periodic disclosures. The Briefing also focuses on consistency in fund documentation and marketing material and, in particular, highlights assessment of funds’ names and the use of ESG-related terms therein.

ESMA also focuses on the role of the depositary and states that supervisors should ensure that all relevant information and data are provided by the UCITS management companies and AIFMs to the appointed depositary to enable it to effectively perform the relevant depositary functions. ESMA states that depositaries should include all ESG-related investment restrictions in the monitoring of the compliance of the instructions coming from the management company and/or the investment manager.

The Briefing also addresses supervision of the integration of sustainability risks by UCITS management companies and AIFMs and states that supervisors should verify compliance of those UCITS management companies and AIFMs with requirements by:

  • checking the description of the manner in which sustainability risks are integrated in their investment decisions in pre-contractual fund disclosures referred to in Article 6 of the SFDR; and
  • ensuring that UCITS management companies and AIFMs perform a review of the relevant internal policies and procedures on a periodic basis.

FMPs should take note that ESMA states that administrative measures, including enforcement, may be appropriate to consider where3:

  • legally required SFDR disclosures are not made at all after the application of the new rules;
  • SFDR disclosures are viewed as severely misleading;
  • sustainability risks have not been integrated throughout an organisation despite an appropriate period of time after entry into force of the AIFMD and UCITS amendments;
  • the periodic disclosure of a financial product disclosing under Article 8 or 9 of the SFDR does not match (or fulfil) the characteristics or objectives shown in the fund documentation; and
  • a financial product disclosing under Article 9 of the SFDR with a sustainable investment objective shows in periodic disclosure that significant proportions of investments do not comply with the sustainable investment criteria of Article 2(17) of the SFDR.


The Chair of ESMA, Ms Verena Ross, has highlighted that “the sustainability disclosure framework is incomplete and imperfect at this time” and the underlying complexity of the information required for sustainability disclosures is, and will continue to be, a “persisting challenge4.

The recent clarifications provided by the ESAs and the Commission are to be welcomed in a complex and technically challenging area for FMPs.

FMPs should note that ESMA has confirmed the ESAs also plan to issue a comprehensive set of formal Q&As on the practical application of sustainability disclosure rules after the delegated regulation laying down the SFDR RTS is published in the Official Journal[5]. It will be important for FMPs to analyse and assess same in anticipation of the application deadline of 1 January 2023 for the SFDR RTS.

  1. The draft RTS were adopted by the European Commission in a Commission Delegated Regulation here on 6 April 2022.
  2. The Briefing relates to sustainability disclosures in the context of SFDR, Taxonomy Regulation, the Prospectus Regulation, integration of sustainability risks and factors in the AIFMD and UCITS Directive, amongst other areas.
  3. This list is intended to be non-exhaustive.
  4. Ms Ross speech to the Irish Funds Annual Global Funds Conference 2022 here.
  5. Expected publication of the delegated regulation is July 2022.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.