European supervisors call for further push back of ESG fund disclosure rules if policymakers don’t give clarity by July

ESAs warn Commission of ‘burdensome’ disclosures requirements if market players aren’t given sufficient time to prepare

The European Supervisory Authorities (ESAs) have said that EU policymakers need to move fast on devising detailed new disclosure rules for ESG-labelled financial products, or push back the date by when investors must adopt the rules. 

The Sustainable Finance Disclosure Regulation (SFDR) will introduce new reporting requirements for financial products that claim to have sustainability objectives. The fundamental principles of those requirements have been decided, and will come into force next week, but the precise details – known as the Regulatory Technical Standards (RTS) – are still being fleshed out. As a result, investors will initially follow more flexible rules, and will only have to adopt the stricter RTS from next year. 

But now the ESAs, the influential trio of financial supervisors including the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority, have said that even January 2022 might be too soon. In a joint statement, the three – who have advised the European Commission on what the RTS should look like – warn that the SFDR standards must be finalised by July if the Commission wants financial institutions to be prepared for a January 1 deadline. 

“[T]he ESAs would like to draw the Commission’s attention to the potential for the application date of 1 January 2022 to be burdensome for financial market participants in relation to the detailed content and presentation requirements for sustainability-related information in periodic reports set out in Chapter V of the RTS”, the ESAs wrote, referring to plans in the draft RTS to require investors to disclose to their clients how financial products fulfil any ESG claims they make.

The ESAs “recommend” that if the draft rules are not approved before July, the Chapter V rules should apply to the period starting from 1 January 2022, rather than applying to any report produced from that date – essentially creating a lag between the introduction of the rule and the requirement to report against it. 

The regulators suggest that financial institutions need at “least six months” to “gather the necessary information and adapt their practices to comply” and note that the draft rules can be used as a “reference” in the interim. 

Victor van Hoorn, Executive Director of Europe’s sustainable investment forum, Eurosif, described the ESAs proposition as “common sense”. He pointed out the difficulty investors would have in reporting information relating to 2021 when they weren’t given the technical rules outlining what should be collected and disclosed until the second half of the year. 

He says it is unlikely that the draft rules will substantially change before being approved by the Commission, but it’s still possible – especially as the SFDR regulation was negotiated relatively quickly, potentially meaning “people didn’t have time to think about all the practicalities”. 

Maria van der Heide, Head of EU Policy at campaign group ShareAction, which has expressed concerns around previous delays associated with the SFDR regulation, told RI that it is “still feasible to adopt the RTS before summer, especially if the Commission does not change the RTS but adopts it as drafted by the ESAs”.