Investors given longer to comply with EU sustainability disclosure rules

Commission letter blames delays on complexity of developing Regulatory Technical Standards for the SFDR

Investors will have an extra six months to comply with the EU’s Sustainable Finance Disclosure Regulation (SFDR), according to a letter seen by RI.

The European Commission wrote to Parliament and Council yesterday explaining that it plans to delay the implementation of the first phase of its new reporting rules until July 2022, from the original January 2022 deadline. 

The SFDR will impose mandatory ESG disclosure requirements on asset managers and other financial players, and is one of the most near-term and complicated initiatives under the EU’s Action Plan on Sustainable Finance. There is growing frustration about the requirements in the asset management industry, as investors still don’t have clarity on what they must disclose under the rules, and how the information must be presented, despite the looming deadline. 

Regulatory Technical Standards (RTS) clarifying the details of seven articles within the SFDR were expected to be launched earlier this week, as part of a broader package that also included the EU’s latest Sustainable Finance Strategy, the adoption of a Delegated Act outlining how companies should use the EU’s green taxonomy, and a legislative proposal on the development of a Green Bond Standard.

Those standards were not presented, and now a letter from John Berrigan, Director-General of the Commission’s Financial Stability, Financial Services and Capital Markets Union unit, which oversees the bloc’s work on sustainable finance, says the rules will be pushed back due to missed deadlines. 

The Commission received the draft RTS from Europe’s financial supervisors in February, but missed its three-month deadline to adopt them, citing the length and complexity of the proposals. A further six sets of draft standards relating to the SFRD were due to be submitted to the Commission by June 1st, but the European Insurance and Occupational Pensions Authority, the European Securities and Markets Authority and the European Banking Authority missed that deadline. 

In order to “facilitate the smooth implementation of the standard by product manufacturers, financial advisers and supervisors”, the letter says, the standards will be consolidated into a single Delegated Act, and the implementation deadline will be extended to July 2022. It is unclear whether a political agreement has already been reached on the decision, which would generally require approval from Council and Parliament before being signed off by the Commission. 

Stefan Fritz, who is in charge of implementing the regulation for German ethical asset manager GLS Investment Management, said that the delay could help avoid the risk of greenwashing. "Of course there's no time to waste, but I think there's a huge risk of greenwashing if we don't implement all the regulations properly. If it takes six more months, it's better to do it this way than to say in a year that the SFDR is failing because of greenwashing. It's better to do it properly than too fast and not precisely".

RI has contacted the European Commission's Financial Stability, Financial Services and Capital Markets Union unit and members of European Parliament for further information.