SFDR - Sustainable finance disclosure regulation with EY Luxembourg

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EY’s ESG reporting service for asset managers and life-insurers

EY is an advocate for the standardization of the ESG data exchange and has therefore been deeply involved in the FinDaTex working group, which is working collectively to establish the European ESG Template (EET). The EET builds on the outstanding success of the EPT and EMT standardization. It is thus no surprise that EY’s life insurance clients see the EET as a natural extension to EY’s PRIIPS data collection service and EY’s data hub, which is connected to 300+ asset managers. 

From 1st August 2022, distributors and insurers must comply with the MiFID II & IDD SFDR requirements for suitability assessment. In order to facilitate this regulatory requirement, asset managers will need to disclose the EET by 1st June 2022 (MiFID and IDD fields only). 

While the RTS requirements for SFDR and Taxonomy disclosures have been postponed to 1st January 2023, the CSSF is encouraging early compliance on a best effort basis. Many asset managers are now focusing on developing pre-contractual information in a separate PDF document and sharing this with distributors and insurers ahead of the deadline. 

Meanwhile, the UK’s FCA has published the TCFD final rules for entity and product reporting dedicated to asset managers, life insurers and FCA regulated pension providers. The first reporting date is set to 30th June 2023. On the one hand, asset managers will need to prepare the reports for their funds and portfolios. On the other hand, funds, which are not directly in scope (such as those that are EU domiciled) might need to share the TCFD information through the EET template, because they are included in a UK product.  

Have you considered how to efficiently produce the EET, TCFD report, pre-contractual (PCD) and periodic documents (PD) in the relevant languages? Do you know what steps to take to comply?   

Contact us to find out everything you need to start producing your SFDR disclosures, Taxonomy alignment and TCFD reporting as well as to familiarize yourself with the 600+ EET fields.

  • Overview of ESG product reporting

    EY’s regulatory reporting’s service comprises the generation of SFDR and TCFD related product reports for asset managers, insurers and pension funds. 

    The key centerpiece is the EET which will enable distributors, insurers, pension funds and fund of funds to provide the following:

    1. Suitability assessment required for MiFID II and IDD
    2. SFDR disclosure of life-insurance products, through the provision of links to the pre-contractual documents (separate single PDF to the prospectus) and periodic documents
    3. Client journey for distributors and insurer by filtering information on investor’s sustainability preferences
    4. SFDR/Taxonomy & TCFD look-through, in order to provide relevant information to fund of funds, pension funds or insurance products for their own disclosure

  • What are the requirements for SFDR precontractual and periodic documents?

    The final draft SFDR & Taxonomy RTS prescribes the templates for SFDR pre-contractual documents (PCD) and periodic disclosure documents (PD). Where the PCD focuses on the planned investments, the PD reports on the actual sustainable investment outcomes. These templates are mandatory for funds qualifying as Article 8 (environmental and/or social characteristics) and Article 9 (sustainable investment as the objective). 

    As the templates are defined in the regulation, the look and feel must comply with the template laid out in the RTS.

    While asset managers include the PCD information as an annex to the prospectus, this is not practical for the disclosure of unit-linked products. Hence, asset managers will need to provide one single document per fund and language through the EET. 

    Due to the quantity of texts in these reports, it is key to have a narratives management solution which efficiently and automatically allocates the various elements to the different fund families and sustainable investment styles. 

    While the PCD focus on the planned/minimum figures – the PD requires fund level aggregation of ESG data at the investment level. This will be the case for figures such as Taxonomy alignment, current asset allocation and product level PAIs. In addition to central narratives management, asset managers must already think about an ESG-related data strategy and the appropriate level of planned/minimum figures. The EET provides granular level data in order to facilitate a look-through. 

    The differences between the PCD, PD and the respective RTS articles are highlighted in the below visualization. 

  • What are the TCFD product reporting requirements?

    The Task Force on Climate-related Financial Disclosures (TCFD) is a set of recommendations aimed at standardizing climate-related disclosures. The UK regulator (FCA) stated that certain TCFD requirements will be mandatory by 2023. On 17th December 2021, the FCA published the final rules dedicated to asset managers, life-insurers and FCA regulated pension providers.

    To comply with the FCA requirements, financial market participants will need to disclose a set of mandatory carbon emissions and carbon intensity metrics on their public website or in an “on-demand report”, as well as additional metrics and scenario analysis on a best effort basis. 

    TCFD Key Metrics

    Scope 1 and 2 greenhouse gas emissions

    Scope 3 greenhouse gas emissions

    Total carbon emissions

    Total carbon footprint

    Weighted average carbon intensity

    Additional TCFD product level disclosure (best efforts basis)

    Climate VaR

    Scenario analysis

  • What is the EET?

    The EET (European ESG Template) enables ESG-related data transfers from asset managers to distributors, insurers and pension/fund of funds:

    1.      Suitability assessment required for MiFID II and IDD

    2.      SFDR disclosure of life-insurance products, through the provision links to the pre-contractual documents (separate single PDF to the prospectus) and periodic documents

    3.      Client journey for distributors and insurers by filtering information of investor’s sustainability preferences

    4.      Look-through for SFDR/Taxonomy & TCFD, in order to provide relevant information to fund of funds, pension funds or insurance products for their own disclosure

    Suitability assessment and client journey:

    The EET includes mandatory information for the suitability assessment, which distributors (MiFID II) and insurers (IDD) need to retrieve per each individual ISIN. On top of this the EET encompasses information to support new client journey/investor profiling options to support the fund selection process in respect to ESG principles, EU Taxonomy alignment, exclusions and PAIs. Hence, it makes sense to include article 6 funds in the EET.

    SFDR disclosure

    The EET includes links to the fund’s individual pre-contractual documents (PCD) and periodic documents (PD), which are electronic documents separate to the prospectus (annex) or annual report. These documents need to be made available in the relevant local languages otherwise insurers would need to restrict the funds’ scope.

    Look-through

    The EET encompasses the necessary content of the PCDs and PDs along with the other relevant ESG, SFDR and EU taxonomy disclosures, as well as the UK TCFD to enable the look-through for fund of funds, pension funds or insurance products for their own disclosure.

  • EY’s cutting-edge ESG fund reporting solution

    EY is the regulatory reporting partner of leading asset managers and insurers on 30+ regulatory reports, such as PRIIPs, AIFMD, MiFID II and Solvency II. This track record also extends to the provision of ESG fund reporting solutions.

    Check out our solution features that clients value the most:

    • Regulatory expertise with the participation in the FinDatEx’s EET working group
    • High degree of automation
    • Digital flexibility in bringing end-to-end process efficiency
    • Complete functionality
      • all the calculations related to the Taxonomy alignment and the PAIs (Principal adverse impact)
      • flexible classification engine for ESG information on instrument level
      • flexible website integration
      • production of reports in all European languages
    • Short onboarding time
    • Plug-and-play reports – such as fund factsheets or PRIIPs KIDs – available on the same platform

  • Major milestones for asset managers with respect to ESG product reporting

     

    EET Delivery

    Regulation

    Topic

    Phase 1

    1st June 2022

    2nd August 2022

    MiFID & IDD

    Phase 2

    1st October 2022

    1st January 2023

    SFDR Pre-Contractual Document (PCD)

    1st October 2022

    1st January2023

    SFDR Product Website Disclosure

    Phase 3

    1st January 2023+

    30th June 2023

    SFDR Period Document (PD)


    CSSF push to an early adaption on a best effort basis:

        · Expectation for new funds to have pre-contractual information available

        · Early deadline to provide pre-contractual information in prospectus

        

  • Impact on insurers

    In addition to now having the possibility to create Environmental, Social or Sustainable dedicated insurance products, insurers will be required to:

    • Include different statements in pre-contractual documents depending on the proportion of underlying assets considered to be financial products
    • Collect EETs from asset managers
    • Provide links within the website to the relevant PCD an PD of Article 8/9 funds
    • Ensure that funds are only available in the respective country if the translated pre-contractual and periodic documents are also available (e.g. an insurer might distribute a product in Portugal, but the fund is not distributing to Portugal and therefore does not have the relevant Portuguese disclosure documents)
    • Comply with website disclosure requirements on PAIs
    • Rethink the client journey on the selection of investment options (EET provides much more details per individual investment option)

    EY’s regulatory reporting service offers a comprehensive solution:

    • EET data collection through EY’s data hub, which is connected to 300+ asset managers
    • SFDR & TCFD reports for insurance funds
    • Seamless website journey or dedicated website disclosure

 
Value add for ESG reporting implementation services
  • Impact assessment of your current capabilities on the SFDR & taxonomy, EET & TCFD reporting reqiurements to help you get up to speed quickly
  • Implementation to support a fast-track transition
  • Reviews of reports, data & process with market insights across Europe
 
 
Value add of EY's Regulatory Reporting Service
  • Cutting-edge reporting platfrom bringing end-to-end efficiency
  • A one-stop service for regulatroy reporting
  • Regulatory and market practice knowledge helping you stay compliant
  • Exceptional client service