SFDR continues to evolve: Delays to review of PAI indicators and SFDR RTS by six months to October 2023

On Monday, the European Supervisory Authorities (ESAs) announced a six month delay to its review of the principal adverse impact indicators and the pre-contractual, website and periodic disclosures for Article 8 and Article 9 funds under the SFDR RTS. The ESAs’ proposed amendments to the SFDR RTS is now scheduled to be published by October 2023, following the initial deadline of 28 April 2023 set by the Commission.

Importantly, the ESAs highlight its intention to develop “a more objective basis to the Do No Significant Harm (DNSH) framework”, which will impact managers of Article 9 funds and Article 8 funds that make sustainable investments.

Currently, these managers are required to disclose how their investments do no significant harm to any environmental or social objective, and set out how the PAI indicators in Annex I have been taken into account regarding this (in addition to whether the sustainable investments are aligned with OECD Guidelines and UN Guiding Principles). There is no prescriptive method or standard for how managers should consider the PAI indicators in this context, and it is ultimately for managers to determine this. The introduction of an objective basis for this test is potentially a significant development.

This further reflects wider commentary from the Commission and the ESAs around tightening the scope of Article 8 and Article 9 products by introducing minimum standards and thresholds.

The ESAs have also indicated its intention to significantly expand the social indicators in Annex I of the RTS (which currently includes five indicators in Table 1 and an additional 17 indicators in Table 3), as part of the revision and extension of PAI indicators covering respective definitions, applicable methodologies, metrics and presentation.

Whilst this announcement will not have an immediate impact on managers, it highlights the complexities of SFDR and how it continues to evolve.

On a separate note, managers subject to SFDR should ensure that they are prepared for the 1 January 2023 deadline when the RTS comes into force, in particular ensuring they are using the correct pre-contractual templates.