Market ‘woefully unprepared’ for SFDR implementation
11 February 2021 UK
Image: fran_kie/adobe.stock.com
With just under one month until the implementation of the EU Sustainable Finance Disclosure Regulation (SFDR), Andy Pitts-Tucker, managing director of Apex ESG rating and advisory, says the market is “woefully unprepared for this landmark regulation”.
SFDR, which comes into effect on 10 March, imposes new transparency obligations and periodic reporting requirements on investment management firms at both a product and manager level.
With less than one month to go until the go-live, Pitts-Tucker says all financial market participants and advisors should understand how it applies to them and be making the necessary preparations for the new regulation, but reveals that “this is far from reality”.
He says: “UK managers cannot rely on Brexit as an excuse — while this regulation hasn’t been included as part of the Brexit on-shoring process, many UK-based firms are likely to remain in the scope of the requirements in their capacity as alternative investment fund managers (AIFMs), for example when marketing funds into the EU or managing EU-based funds.”
“This, combined with greater investor scepticism around ‘greenwashing’ practices, is pushing many in the market towards voluntary adoption,” he adds.
Since the start of 2021, Pitts-Tuckers explains that there has been an increase in funds appointing specialist advisers and technology platforms to help assess sustainability strategy at the entity and product level, quickly identifying any gaps and regulatory standards to ensure continued compliance.
But he stresses that despite the time pressure, funds should not “seek a quick fix that only aids the collection of the mandatory data” as the requirements on those in scope are going to increase as environmental, social, and governance (ESG) legislation develops.
To prevent being unprepared as reporting requirements evolve, Pitts-Tuckers comment: “[Firms] should put a system in place now, which collects data currently seen as optional, as well as the information needed to monitor and track ESG performance over time.”
On 4 February, the joint committee of three European Supervisory Authorities (ESAs) submitted their final report to the European Commission, including draft RTS, on the content, methodologies and presentation of disclosures under the EU regulation.
The proposed RTS aim to strengthen protection for end-investors by improving ESG disclosures to end-investors on the principal adverse impacts of investment decisions and on the sustainability features of a wide range of financial products.
It comes in response to investor demands for sustainable products and to reduce the risk of greenwashing.
The final report takes into account the feedback received on the consultation paper that was launched on 23 April last year.
The commission is expected to endorse within three months of their publication.
While financial market participants and financial advisers are required to apply most of the provisions on sustainability-related disclosures laid down in the SFDR from 10 March 2021, the application of the RTS will be delayed to a later date, according to the commission’s letter to the ESAs.
The ESAs plan to issue a public supervisory statement before the application date of SFDR in order to achieve an effective and consistent application of the SFDR’s requirements and consistent national supervision of the SFDR.
The ESAs will also publish a consultation on taxonomy-related product disclosures under the Taxonomy Regulation.
On 9 December 2019, the SFDR was published in the Official Journal. The Taxonomy Regulation was published in the Official Journal on 22 June 2020.
SFDR, which comes into effect on 10 March, imposes new transparency obligations and periodic reporting requirements on investment management firms at both a product and manager level.
With less than one month to go until the go-live, Pitts-Tucker says all financial market participants and advisors should understand how it applies to them and be making the necessary preparations for the new regulation, but reveals that “this is far from reality”.
He says: “UK managers cannot rely on Brexit as an excuse — while this regulation hasn’t been included as part of the Brexit on-shoring process, many UK-based firms are likely to remain in the scope of the requirements in their capacity as alternative investment fund managers (AIFMs), for example when marketing funds into the EU or managing EU-based funds.”
“This, combined with greater investor scepticism around ‘greenwashing’ practices, is pushing many in the market towards voluntary adoption,” he adds.
Since the start of 2021, Pitts-Tuckers explains that there has been an increase in funds appointing specialist advisers and technology platforms to help assess sustainability strategy at the entity and product level, quickly identifying any gaps and regulatory standards to ensure continued compliance.
But he stresses that despite the time pressure, funds should not “seek a quick fix that only aids the collection of the mandatory data” as the requirements on those in scope are going to increase as environmental, social, and governance (ESG) legislation develops.
To prevent being unprepared as reporting requirements evolve, Pitts-Tuckers comment: “[Firms] should put a system in place now, which collects data currently seen as optional, as well as the information needed to monitor and track ESG performance over time.”
On 4 February, the joint committee of three European Supervisory Authorities (ESAs) submitted their final report to the European Commission, including draft RTS, on the content, methodologies and presentation of disclosures under the EU regulation.
The proposed RTS aim to strengthen protection for end-investors by improving ESG disclosures to end-investors on the principal adverse impacts of investment decisions and on the sustainability features of a wide range of financial products.
It comes in response to investor demands for sustainable products and to reduce the risk of greenwashing.
The final report takes into account the feedback received on the consultation paper that was launched on 23 April last year.
The commission is expected to endorse within three months of their publication.
While financial market participants and financial advisers are required to apply most of the provisions on sustainability-related disclosures laid down in the SFDR from 10 March 2021, the application of the RTS will be delayed to a later date, according to the commission’s letter to the ESAs.
The ESAs plan to issue a public supervisory statement before the application date of SFDR in order to achieve an effective and consistent application of the SFDR’s requirements and consistent national supervision of the SFDR.
The ESAs will also publish a consultation on taxonomy-related product disclosures under the Taxonomy Regulation.
On 9 December 2019, the SFDR was published in the Official Journal. The Taxonomy Regulation was published in the Official Journal on 22 June 2020.
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