10 March 2021 deadline for SFDR key provisions is approaching. Are you ready?
What is coming and who is affected?
On 10 March 2021, several key requirements of Regulation 2019/2088 of 27 November 2019 on sustainability‐related disclosures in the financial services sector (the Sustainable Finance Disclosure Regulation - SFDR) will enter into force.
SFDR sets out to enhance transparency and awareness about the manner in which financial market participants and financial advisers integrate sustainability risks and factors into their investment decisions and advice practices towards end investors with regard to financial products being offered.
SFDR also encompassed the EU insurance sector in its scope. Its requirements will apply to both insurance companies offering, most notably, insurance-based investment products, and insurance intermediaries in the context of providing investment advice.
Harmonization of sustainability disclosure requirements
SFDR provides a set of harmonized rules of disclosure requirements relating to sustainability. The need for a single set of rules stems for the fact that a growing number of “disclosure initiatives” at the national, regional and supranational level can confuse stakeholders and end investors and make it difficult to effectively compare different financial products with respect to their environmental, social and governance (ESG) risks and sustainable investment objectives.
As such, the SFDR forms part of a broader EU initiative to harmonize the sustainability legal framework, which also includes the new Taxonomy Regulation and the revised Non-Financial Reporting Directive.
Distinction between different levels and types of products
SFDR provides for disclosures both at the “entity level” and the “product level” and its specific impact on business will therefore need to be assessed on both levels.
In addition, SFDR introduces a distinction between different categories of financial products:
- financial products promoting environmental and/or social characteristics;
- financial products with sustainable investments as objectives;
- financial products that are not specifically qualified as sustainable.
Notably the first 2 categories of financial products will trigger enhanced disclosure requirements. Insurance companies will need to determine into which category each of their products fall in scope of the SFDR.
Impact on content of website, pre-contractual information and periodic reporting
As from 10 March 2021, insurance companies and insurance intermediaries will need to ensure their websites as well as certain aspects of their pre-contractual information are updated. In particular, the SFDR imposes additional disclosure requirements relating to:
- integration of sustainability risk in the investment decision-making and advice process;
- principal adverse sustainability impacts of investment decisions on sustainability factors;
- integration of sustainability risk in remuneration policies.
Further regulatory obligations, such as a ‘sustainability update’ to periodic reports or more detailed ‘product level’ disclosures for so-called ‘light green’ or ‘dark green’ sustainable financial products, are set to be implemented within the 2021-2022 time frame.
Finalized level 2 requirements
Lastly, additional delegated acts clarifying certain key aspects of this regulation have been made available by the European Supervisory Authorities earlier this month, and are set to be formally adopted and published with an entry into force expected by the end of the year.
How we can assist you
KPMG Law and KPMG specialists in ESG can assist you in mapping the specific requirements of SFDR for your business and in providing the necessary measures for implementation. We can also assist you in looking beyond the initial deadline of 10 March 2021 and can help move your organization towards a more sustainable overall approach.
Please do not hesitate to contact Isabelle Blomme (Partner KPMG Law) and Walter Jacob (Senior Counsel KPMG Law) if you have any questions or require further information.