ESG: European Regulators Seek Clarification on the Application of the Sustainable Finance Disclosure Regulation

Akin Gump Strauss Hauer & Feld LLP

European financial supervisory authorities have requested the European Commission to clarify key areas of ambiguity regarding the scope and application of the Sustainable Finance Disclosure Regulation1 (SFDR), including its extraterritorial application.

The Joint Committee of the European Supervisory Authorities (ESAs) responsible for drafting the regulatory technical standards under the SFDR has written to the European Commission seeking clarity on “several important areas of uncertainty in the interpretation of SFDR.”2

The ESAs also seek clarification about whether the SFDR applies to non-EU Alternative Investment Fund Managers (AIFM) when marketing under the national private placement regime of Article 42 of the Alternative Investment Fund Managers Directive3 (AIFMD) in the EU. Specifically, the ESAs have sought clarity about whether “SFDR applies to non-EU AIFMs, for example when they market a sustainable EU Alternative Investment Fund under a National Private Placement Regime.” The ESAs state that clarity is being sought from the European Commission for the following reasons:

“SFDR applies to financial market participants and financial advisers. Article 2(1)(e) SFDR defines ‘an alternative investment fund manager (AIFM)’ as one of the financial market participants to which SFDR applies. An ‘AIFM’ is further defined in Article 2(4) SFDR with reference to Article 4(1)(b) of Directive 2011/61/EU (the Alternative Investment Fund Managers Directive (AIFMD)). Therefore, SFDR applies to AIFMs in general by virtue of the reference to Article 4(1)(b).”

In our previous ESG alert of 25 November 2020, we discussed the potential extraterritorial reach of the SFDR due to the broad drafting and certain guidance provided by the European Commission in the context of the Taxonomy Regulation.

The ESAs have also stated that, although “many of these interpretative uncertainties of SFDR may be clarified in due course, the ESAs have identified certain priority questions pertaining to the SFDR that would benefit from a more urgent clarification to facilitate an orderly application of SFDR from 10 March 2021.”

The five priority areas identified by the ESAs are:

  1. The application of SFDR to non-EU AIFMs and registered AIFMs
  2. Application of the 500-employee threshold for principal adverse impact reporting on parent undertakings of a large group
  3. The meaning of “promotion” in the context of products promoting environmental or social characteristics
  4. The application of Article 9 of SFDR
  5. The application of SFDR product rules to portfolios and dedicated funds.

We set out in Annex 1 to this client alert the full list of questions put to the European Commission by the ESAs.

The contribution of Andrea Gonzaga is gratefully acknowledged.


1 Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (See here).

2 Letter from Steven Maijoor to the European Commission on Priority Issues Relating to SFDR Application, 7 January 2021 (See here).

3 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (See here).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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