With SFDR II coming into force in a matter of weeks, the regulative picture remains incomplete with major issues still unaddressed by regulators.
Sustainable Financial Disclosure Regulation (SFDR) regulatory technical standards (RTS) come into play 1 January 2023. Firms had to have documents in order by 31 October 2022, or risk their visa stamps not being released before the implementation date. But there is still confusion around what the new regulations will actually do, how they will work, and what they mean for companies. SFDR was first introduced by the European Commission (EC) as part of its 2018 Sustainable Finance Action Plan, with its first iteration going live 10 March 2021. In the Official Journal of the European Union, it is defined as: “harmonised rules for financial market participants and financial advisers on transparency, with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes, and the provision of sustainability-related information with respect to financial products.”
In other words, SFDR requires firms to meet certain disclosure requirements regarding their ESG impacts and initiatives. This should make it easier for end-investors to understand and compare products and make more informed decisions. The regulation marks a significant shift in industry action: “Before the SFDR, there were no regulatory or legal parameters around what is considered a sustainable investment,” Colette Zoe Bebee, senior consultant at Deloitte Luxembourg, says. SFDR II is certainly a step forwards in regard to ESG consideration, but how well will it work in realit
It’s been a rocky road to the new RTS, with SFDR Level II implementation pushed back twice. Yet, in spite of the extra time that the EC has taken to ensure a smooth transition for the industry, market participants say there are still serious problems that are yet to be addressed.
While the original SFDR was ostensibly updated to provide more details as to what disclosures should contain and...