The SFDR and the Taxonomy Regulation: Key Developments and What Firms Can Expect in the Coming Year -

Almost a year on from the date on which the European Union’s Sustainable Finance Disclosure Regulation (SFDR) came into force on 10 March 2021, the market interpretation of the new environmental, social and governance (ESG) rules is beginning to settle, but the hard work is not over as firms will need to continue to focus on their internal arrangements to obtain the data they need, and find ways to identify or create appropriate proxy data. SFDR saw introduction of the product categories, and the attendant disclosure requirements under the SFDR for the product and the product provider, as well as the environmental sustainability classification system under the Taxonomy Regulation. The delayed application of key provisions under the long-awaited secondary legislation (providing additional colour on the requirements under the SFDR and the Taxonomy Regulation) (RTS) to 1 January 20231 provides more time to prepare for the more detailed disclosures. However, the absence of meaningful data and guidance regarding acceptable proxy data, and the absence of technological solutions allowing firms to more effectively harness their proprietary data and enrich it with relevant external data from sustainability ratings providers and others continues to complicate compliance. The mandatory entity-level requirem