EU Commission issues request to ESAs to revisit the regulatory framework of the SFDR specifically in relation to Principal Adverse Indicators (“PAI”)

16 May 2022

The EU Commission decided to bundle all 13 draft regulatory technical standards in a single delegated regulation and defer the date of application of the act to January 1, 2023. The Commission adopted the SFDR Delegated Regulation on April 6, 2022 and now requires amendments to be made to the Delegated Regulation based on new regulatory technical standards.

In the absence of such changes, several areas in the SFDR Delegated Regulation might risk, if not adjusted, not appropriately reflecting the new factual and regulatory situation.

Required Amendments

The ESAs have been invited to propose amendments within a period of 12 months, which, inter alia will seek to:

Streamline and develop further the regulatory framework
Consider extending the lists of universal indicators for principal adverse impacts, as well as other indicators
Refine the content of all the indicators for adverse impacts and their respective definitions, applicable methodologies, metrics and presentation, including broadening disclosure requirements

Principal Adverse Indicators (PAI)

A guiding principle for amendments to the regulatory technical standards

Reduce the risk of ‘false certainty’
Potential ‘safeguards washing’ by requiring well substantiated evidence that investments align with the safeguards, and
That implementation and application efforts do take place.

Disclosures based on these indicators should be proportionate and feasible for financial market participants

Transparency by financial products

ESAs are invited to jointly propose amendments to regulatory technical standards in relation to the information provided:

In relation to financial products in pre-contractual documents, on websites, and in periodic reports on de-carbonisation targets, including intermediary targets and milestones, where relevant, and actions pursued.
Disclosures should also consider if there Is sufficient information on environmentally sustainable economic activities