ESAs publish draft RTS for PAI changes under SFDR

What's been published?

On 4 December 2023, the Joint Committee of the European Supervisory Authorities (the ESAs) published a Final Report containing draft Regulatory Technical Standards (RTS).

In April 2022, the European Commission mandated the ESAs to

• develop draft RTS in respect of the disclosure of Principal Adverse Impacts (PAI) of investment decisions on sustainability factors as currently set out in the Level 2 Delegated Regulation made under SFDR and

• introduce disclosure of financial products' decarbonisation targets.

The ESAs consulted on proposals for new rules in April 2023 - see our client note on their consultation paper here - and have now published their Final Report, setting out their draft RTS.

We will be publishing a client note on the key issues contained in the Final Report shortly.

What do the RTS cover?

The draft RTS cover the topics contained in the European Commission's mandate:

• extending the list of social indicators for PAIs

• refining the content of a number of the other PAI indicators and their respective definitions, applicable methodologies, metrics and presentation and

• introducing new financial product disclosure of greenhouse gas (GHG) emission reduction targets.

However, the ESAs have gone beyond what was explicitly requested by the Commission, and have considered further changes based on shareholder experience, shared through Q&As, as well as feedback from the NCAs.

These proposed changes relate to

• enhanced disclosure of how sustainable investments comply with the do not significantly harm (DNSH) principle

• simplification of the templates contained in Annexes II to V of the SFDR Delegated Regulation (including include a new dashboard with a simple summary of key information)

• revision of the provisions for products with investment options such as multi-option products (MOPs) and

• other technical adjustments, including harmonised calculation of sustainable investments and a requirement to produce the disclosures in machine-readable format.

What happens next?

The RTS will be adopted by the Commission and, having been reviewed and approved by the European Parliament and the Council of the EU will be published in the Official Journal. It is unclear as yet when the new provisions are likely to become effective.