Sustainable Finance Disclosure Regulations

Current state of work

Sustainable finance has become a real trend across Europe, as well as in most places across the globe; as an example, APAC markets such as Singapore and Hong Kong become really focused on ESG and matters relating to sustainable finance are progressing rapidly.

The European markets, in particular leading ESG EU/EEA markets appear as a sort of reference in sustainable finance area. In this context, the EU Commission, as well as certain EU/EEA NCAs (National Competent Authorities), recently took measures in regard to the protection of investors, principally in respect to disclosure made by ESG products managers in regard to non-financial criteria. Other measures will be taken by other NCAs, as well as competent authorities of non-EU/EEA jurisdictions.

This page provide an up-to-date state of work reflecting the progress of major projects relating to sustainable finance disclosure regulations; the page will be updated from time to time to reflect the most relevant changed laid down in the main distribution markets.
Feel free to contact us in relation to sustainable investment disclosure regulations and any related practices.

FundGlobam's conviction

At FundGlobam, we are very focused on sustainable finance: we are convinced that, what was a growing trend in the last few years, has now become an evidence. We see a paradigm shift in the behaviour of our society and the investor behaviour has changed on the basis of societal, climatic and economic evidences, events that may have global impacts and the impacts of our global economic model.

The EU framework for sustainable finance

EU Sustainable Finance is a key EU Commission’s project aiming at delivering an EU framework under the European Green Deal and all EU’s international commitments on climate and sustainability objectives for changes. The EU wishes to be strongly supporting the transition to low carbon, resource-efficient and sustainable economies within a sustainable growing (evolving) financial system.

The timeline is the following:
- 2015: UN 2030 agenda for sustainable development plan and Paris climate agreement
- 2018: Action plan on financing sustainable growth and the development of a renewed sustainable finance strategy
- 18 October 2019: International platform on sustainable finance
- 11 December 2019: European Green Deal
- 14 January 2020: European Green Deal Investment plan
- October 2020: Draft delegated regulation on climate change mitigation
- 31 December 2020: Delegated act on climate change mitigation

In this context:

a) A Commission High-Level Expert Group (HLEG) on sustainable finance was launched in December 2016 to advise the Commission on EU sustainable finance framework

b) A Member States Expert Group (MSEG) was created in April 2018 to allow coordination of initiatives between EU and national levels

c) A Technical Expert Group (TEG) was launched in July 2018 to assist in the development of standards, classification system, methodologies and metrics for climate-related disclosure

d) A Platform on sustainable finance will be composed of experts from private and public sectors to advise the Commission on the technical screening criteria for the EU taxonomy (application for selection is in progress since the summer of 2020)

SFDR, Sustainable Finance Disclosure Regulation (EU) 2019/2088

Sustainability-related disclosure in the financial service sector is based on the Regulation (EU) 2019/2088 of the European Parliament and the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector. This regulation, entering into force on 10 March 2021, shall govern sustainability disclosure obligations for manufacturers of financial products and financial advisors towards end-investors.

This Regulation lays down an EU harmonised framework and a set of rules relating to transparency disclosures on sustainability risks, consideration of adverse sustainability impacts and sustainability-related information on financial products; this Regulation will be applicable to fund manufacturers, distributors and financial advisors/intermediaries.

The Regulation will crystallise EU/EEA Member States national regulations and rules on non-financial disclosures.

SFDR applies to required fund documentation (prospectus, KIIDs, annual/semi-annual reports and constitutive documents) and to any marketing material ( monthly factsheet, periodic report, websites, brochure, presentation slides, etc.).

SFDR enters into force on 10 March 2021.

SFDR provides EU regulations applicable to non-financial disclosure relating to investment funds, inter alia:

Transparency of sustainability risk policies
Transparency of remuneration policies in relation to the integration of sustainability risks
Transparency of the integration of sustainability risks
Transparency on adverse sustainability impacts for market players
Transparency on adverse sustainability impacts for products
Transparency of the promotion of environmental or social characteristics in pre-contractual disclosures
Transparency of sustainable investments in pre-contractual disclosures
Transparency of the promotion of environmental or social CHARACTERISTICS AND of sustainable investments on websites
Transparency of the promotion of environmental or social characteristics and of sustainable investments in periodic reports
Rules for review disclosures
Rules applying to marketing communication
etc.

The French non-financial criteria disclosure regulation

The AMF guidance DOC-2020-03 (the "AMF Guidance") is wishing to lay out a set of rules to ensure a fair, not misleading and consistent communication of such products, UCITS or AIF, marketed to retail investors in France.

The AMF Guidance approach is based on the provision of measurable non-financial criteria in the communication made to retail investors, considering the following different levels of communication:
1. Non-financial criteria a key aspect of the communication of a fund product
2. Limited communication of non-financial criteria of a fund product
3. Communication of non-financial criteria is limited to the prospectus of a fund product

This AMF Guidance applies to any asset manager or distributor marketing green / sustainable investment fund products in France:
- Any type of French domiciled funds marketed to retail investors
- Foreign UCITS funds marketed to retail investors in France on cross-border basis

The AMF Guidance is applicable to any of the following:
1. Regulatory documentation: prospectus, KIIDs, annual and semi-annual report, constitutive documents
2. Marketing material: any material which is not regulatory documentation, including the website, irrespective of the form and the media

Disclosure requirements listed below are provided:
1. Rules applicable to French funds when defining their non-financial aspects strategy
2. Rules governing the information provided to investors in relation to non-financial criteria applicable to both required fund documentation (prospectus, KIIDS, ...) and marketing material
3. Rules applicable to foreign UCITS marketed in France

The AMF Guidance is in force since 30 September 2020 with a transitional period applicable for funds marketed in France before 11 March 2020.

The AMF has confirmed the implementation of SFDR in France on the 20st of January, clarifying the relationship between SFDR requirements and the AMF Guidance, inter alia the requirements for fund manufacturers distributing ESG funds in France to identify each fund under Articles 8 and 9 and apply SFDR requirements.

The Luxembourg sustainability-related disclosure regulation

CSSF laid down new regulatory requirements and a fast-track procedure in relation to SFDR on sustainability-related disclosures.

SFDR REGULATORY REQUIREMENTS
New regulatory requirements govern transparency in relation to sustainability risks, adverse sustainability impacts and sustainability-related disclosure.
According to SFDR, IFM are required to disclose how they integrate sustainability risks in their investment policy, and how they assess related impacts of risks on future returns.
The new regulatory framework governs the implementation of SFDR requirements in required fund documentation, marketing material and websites, which needs to be aligned at the very latest by 28 February 2021.

SFDR FAST TRACK PROCEDURE
CSSF laid down a fast-track procedure for Luxembourg UCITS facilitating the submission of updated prospectus according to SFDR requirements to be visa-stamped by 28 February 2021 at the latest.
The fast-track procedure is available since 16 December 2020 in relation to UCITS, SIFs and Part II UCIs.
The fast-track package must be applied together with confirmation letter - the template notification letter is available on CSSF website.
Please note that this fast-track enable SFDR-related changes only.

Assistance on sustainable finance disclosure: please contact us

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