European Commission provides fresh guidance on SFDR implementation

The European Commission has provided more details about how new EU-wide sustainable finance rules should be interpreted and implemented.

The EC today published responses to questions raised by the European Supervisory Authorities on the Sustainable Finance Disclosures Regulation.

The aim of these so-called EU question & answer sessions is to help financial market participants to apply the new SDFR, the Commission explained. 

"These Q&As also contribute to clarifying the interaction between the SFDR and the different pieces of the sustainable finance framework," the EU body said in a statement. 

The new EU rules, commonly referred to as SFDR, is the EU's first regulation to redirect capital flows toward sustainable financing and increase transparency among financial institutions and market players.

Earlier this year, it entered its level two-phase, which means that financial market participants with more than 500 employees are obligated to disclose their ESG information by June 30th.

Mairead McGuinness, The European Commissioner for Financial Services, stressed that "the SFDR is the first Regulation to set rules on how financial market participants should disclose sustainability related information."

Therefore "the application of the SFDR requirements represents a challenge to industry and regulators and these Q&As aim to offer guidance to facilitate the proper implementation of the rules," she added.

"In parallel, we will continue our comprehensive assessment of the SFDR with a focus on ensuring legal certainty, increased usability and the mitigation of greenwashing. A public consultation is planned for the autumn," McGuinness concluded.

Businesses unprepared

Late last month, NZI reported that more than half of all businesses have not started collecting data to comply with the new SFDR framework.

Less than one in four businesses are collecting because they’re preparing “for future readiness" while 39% of respondents know what data they need to collect and have started gathering it.

The study that was shared with Net Zero Investor in March offers insights into how financial market participants worldwide prepare for compliance as they approach the mandatory disclosure deadline, from clarifying data collection to addressing principal adverse impacts.

The report, prepared by Worldfavor, explained to this publication the main purpose of the study is to gain "a greater understanding of how financial market participants perceive SFDR, work with it in practice, and what challenges and opportunities they see for the future of reporting."

Compliance

The findings provide insight into the thoughts, actions, and experiences of participants affected by the new requirements, such as 48% of respondents collecting data due to some type of requirement – either because they are personally obligated to collect PAIs or to answer LP demands.

Moreover, 38% of respondents are collecting because they’re preparing “for future readiness" while 39% of respondents know what data they need to collect and have started gathering it.

Meanwhile, 22% of respondents say they haven't started data collection yet and 16% of respondents say they don’t know what data they need in the first place.

9% of respondents know what they need but don’t have access to it, while 14% of respondents have brought in an external SFDR consultant.

16% of respondents collect their data manually, meanwhile, and 29% of respondents are using multiple digital tools to collect their data.

One in four use a single digital tool to collect, manage and review their data in one place.

The three main challenges respondents experience when trying to acquire data from portfolio companies are a lack of knowledge on the topic (36%), gaps in the data (32%), and uncertainty about what data to collect (30%).

For the future of reporting, respondents stated that they wish to see more clarity in regulations, clarity on how data should be calculated, more alignment across sectors, more efficient data collection processes, and more guidance and understanding, among other things.