On 2 February 2021, the Joint Committee of the European Supervisory Authorities (“ESAs”) published regulatory technical standards of the Sustainable Finance Disclosure Regulation  (“SFDR”) providing, inter alia, detailed requirements for pre-contractual and periodic report disclosures of products promoting environmental or social characteristics  (“light green products”) and products having a sustainable investment objective  (“dark green products”).
On 15 March 2021, the ESAs launched a public consultation on new regulatory technical standards (“RTS”) with regard to the content and presentation of sustainability disclosures pursuant to articles 8(4), 9(6) and 11(5) of SFDR to specify additional disclosures in relation to products making use of the environmental Taxonomy Regulation (“TR”). These two sets of RTS will be consolidated to provide a single rulebook for sustainable disclosures.
Stakeholders can provide feedback before 12 May 2021. ESAs should issue a final report to the European Commission by early July 2021. The final RTS will apply from 1 January 2022 in respect of climate change mitigation and climate change adaptation objectives and from 1 January 2023 with respect to other environmental objectives referred to in the TR.
The new draft RTS lay down the content, methodologies and presentation of the additional information on the degree of taxonomy alignment light green and dark green products will have to include in their pre-contractual and periodic disclosures.
1. Standardized metric
The extent to which investments are taxonomy-aligned should be calculated as a ratio. The numerator consists of the proportion of the market value of investments in investee companies which is the same as the proportion of environmentally sustainable economic activities of those investee companies. For debt instruments, the proportion of the proceeds used for environmentally sustainable economic activities should be included in the numerator. The denominator should be the market value of all investments.
2. Assessment of taxonomy-alignment
The assessment should build upon the framework applicable to the undertakings falling in the scope of the Non-Financial Reporting Directive (“NFRD”) which will be required to disclose the proportion of their turnover, capital expenditure or operating expenditure which is taxonomy-aligned pursuant to Article 8 of the TR.
For the assessment of investments in investee companies which are not in scope of NFRD, public reporting of data should be preferred, followed by privately obtained data, either directly from investee companies or from third parties, provided the information is equivalent to the disclosures made in accordance with Article 8 of the TR.
3. Consistency requirements
The key performance indicator (“KPI”) used to measure the taxonomy-alignment of investee companies should be the same for both pre-contractual and periodic disclosures of all investee companies that are non-financial undertakings. The selection of the indicator and its suitability to inform end investors should be explained. The same consistency requirements apply at the level of all investee companies which are financial undertakings.
4. Derogation from general requirements
Light green and dark green products that are taxonomy-aligned by making investments in environmentally sustainable economic activities do not need to explain further how those investments contribute to an environmental objective and do not need to take into account adverse impact indicators of Table 1 of Appendix 1 of the SFDR RTS in respect of those sustainable investments.
Undertakings for collective investment (“UCIs”) subject to these new draft RTS should already anticipate their implementation since it is expected that their final version will be applicable as from the same dates as the SFDR RTS they amend.
Dark green and light green UCIs should prioritize the analysis of the KPIs reported or expected to be reported by investee companies and the selection of the KPI for both non-financial and financial investee companies. The selected KPIs should be most appropriate to provide a fair view of the attainment of the UCI’s environmentally sustainable objective or the contribution of environmentally sustainable investments to the characteristics promoted by the UCI, taking also into consideration the transparency expectations of the UCI’s investors.
Any expected gaps arising from investee companies which are not in scope of the NFRD should be investigated, either by engaging with these companies to figure out whether or not they intend to publicly report their taxonomy alignment or are prepared to report such information privately. This strict hierarchy of data sources provided by the new draft RTS prevents investors to use third-party data providers as a default one-size-fits-all solution.
For more information please read: Joint Consultation on Taxonomy-related sustainability disclosures (europa.eu)