On 4 August the European Supervisory Authorities (“ESAs”) released new Q&As under the Sustainable Finance Disclosure Regulation (“SFDR”). The updated Q&As are available here.
The new Q&As make the following clarifications:
- A new Q&A makes clear that an SFDR financial product disclosure can state that the product intends to make a specific amount of environmentally sustainable investments (X%), and a specific amount of socially sustainable investments (Y%), without these adding up to a commitment to a specific minimum proportion of total sustainable investments (Z%). The Q&A acknowledges that since such % commitments are minimums, they can legitimately not add up. However, the ESAs suggest best practice is including a clear explanation as to why X% and Y% does not add up to Z% in the case of the specific product.
- The Q&As address a longstanding question as to how top investments or shares of investment should be calculated for the purposes of financial product periodic disclosures (given there is no prescribed methodology for this in SFDR). The ESAs state that since SFDR periodic disclosures are linked to periodic disclosures under underlying sectoral legislation, the ESAs cannot impose a specific way of calculating these. This suggests financial market participants have flexibility to determine these calculations in an appropriate way rather than there being a one size fits all approach under SFDR.
- One of the Q&As clarifies that in interpreting PAI indicator 6 in Table 2 of Annex I of SFDR (water usage and recycling), firms could look at definitions and disclosure information in the European Sustainability Reporting Standards (“ESRS”) for concepts around water consumption, intensity, recycling and reuse.
- The ESAs have made clear that in interpreting “per square meter”, as referred to in the PAI indicator “Energy consumption in GWh of owned real estate assets per square”, the EU Taxonomy can be used as inspiration in referring to “useful internal floor area”.
