The Sustainable Finance Disclosure Regulation (SFDR) is part of the European Union’s Action Plan to reorient capital flows towards sustainable investments to achieve sustainable and inclusive growth. This action plan sets the scene for a more stringent regulatory environment, introducing new regulations and adding amendments to existing directives.

All financial market participants will face repercussions from the SFDR, affecting the way they operate their business and the products they offer.

Here is a timeline of the SFDR deadlines:

The first deadline, 10 March 2021, will impose the following obligations:

Obligations at the entity level

Entity policies should be updated before 10 March 2021 for most of the policies.

Sustainability risks, at the entity level, before 10 March 2021:

• Formulate a sustainability risks policy
• Update the remuneration policy (to ensure consistency with the integration of sustainability risks)
• Determine if sustainability risks are integrated into investment decisions/advice.
  • If they are, determine their likely impact on product returns.
  • If they are not, state the reasons why.

Marketing documents, before 10 March 2021:

• Ensure the marketing documents do not contradict the information disclosed pursuant to the regulation

Adverse impacts, at the entity level, before 30 June 2021:

• Determine whether adverse impacts are considered in the investment processes.
  • If they are, draft an internal sustainability due to diligence policy 
  • If they are not, state the reasons why.

Deloitte can assist you in:

• Formulating the sustainability risks policy.
• Updating the remuneration policy (to ensure consistency with the sustainability risks integration).
• Determining how sustainability risks are integrated into the investment decisions/advice and their likely impact on product returns. If they are not, Deloitte can assist you in stating the reasons why.
• Determining whether adverse impacts are considered in the investment processes and if yes, defining the due diligence process to identify and monitor them.
• Ensuring the marketing documents do not contradict the information disclosed pursuant to the regulation.
• Adapting the product approval process to include sustainability preferences in the target market and product testing.
• Adapting the information and code of conduct in terms of IBIPs distribution to include sustainability preferences.

Obligations at the product level

Products with an environmental, social, and corporate governance (ESG) focus should be reviewed before 10 March 2021 (although conformity with the regulatory technical standards [RTS] has been delayed to the “beginning of 2022”)

Products with environmental and social characteristics or with sustainable objectives:

• Describe the products’ environmental and social characteristics or objectives, methodologies, and goal fulfilment.
• Provide information on the consistency and relevance of the chosen index.
• For multi-option products, provide a reference to the above info

Deloitte can assist you in:

• Preparing a product classification framework to identify products that promote environmental and social characteristics (Article 8) and products that have sustainable investment as their objective (Article 9).
• Updating the ‘Fiche d’Information Produit’ to mention the environmental and social characteristics (Article 8) or sustainable objectives (Article 9) of a part or all the underlying options.
• Disclosing the list of investment options with a clear distinction between those that are Article 8 from those that are Article 9, or none.
• Collecting the prospectus of the investment options with environmental and social characteristics or sustainable objectives and making these prospectuses accessible on the website.