On 26 July 2021, the European Commission released a Q&A on the application of the SFDR. Below is a summary of the document.
Yes, SFDR applies to sub-threshold AIFMs for entity and product level disclosures. If the sub-threshold AIFM is not directly subject to the AIFMD disclosure requirements, it should include SFDR disclosures in the analogous documents.
The SFDR also applies to non-EU AIFMs for product level disclosures, as they are included in the definition of “AIFM”. There are no indications of applicability to non-EU managers relying on reverse solicitation.
The 500-employee criterion test in article 4(3) relates to a Financial Market Participant (FMP) whereas the same test in article 4(4) relates to a large group in its entirety, with the calculation of headcount taking into account the number of employees of a parent undertaking and of subsidiary undertakings regardless of whether they are established inside or outside the EU.
The due diligence disclosure requirement applies to FMPs, adapted to the specific requirements of the parent undertaking and not the group as a whole. The criterion of a group is relevant only for the headcount test.
An article 9 product may invest in a wide range of assets, only if they qualify as sustainable investments under Article 2(17) of SFDR. It may however invest in other investments for certain specific purposes such as hedging or liquidity if they meet minimum environmental or social safeguards.
Where an EU PAB/ EU CTB does not exist, the pre-contractual info must include a detailed explanation of how the effort of attaining the objective of reduced carbon emissions is ensured in view of achieving long term global warming objectives of the Paris Agreement.
If an EU PAB/ EU CTB exists, a financial product must be tracking these.
The implementation of minimum standards by benchmark administrators (for the construction of EU CTB Benchmarks and EU PAB) must ensure compliance with Article 17(2) of SFDR.
Product names or designations are included within the definition of promotion under Article 8 of SFDR.
The integration of sustainability risks is not sufficient for Article 8 to apply to a product.
Article 8 of SFDR is neutral as to the design of financial products and does not prescribe the composition of investments/ minimum investment thresholds. It also does not determine eligible investing styles, tools, strategies or methodologies to be employed.
The term “promotion” under the SFDR has a wide array of examples, from which the Q&A lists a significant number:
direct or indirect claims, information, reporting, disclosures as well as an impression that investments pursued by the given financial product also consider environmental or social characteristics in terms of investment policies, goals, targets or objectives or a general ambition in, but not limited to, pre-contractual and periodic documents or marketing communications, advertisements, product categorisation, description of investment strategies or asset allocation, information on the adherence to sustainability-related financial product standards and labels, use of product names or designations, memoranda or issuing documents, factsheets, specifications about conditions for automatic enrolment or compliance with sectoral exclusions or statutory requirements regardless of the form used, such as on paper, durable media, by means of websites, or electronic data rooms.
A financial product can be subject to Article 8 of SFDR if it complies with local environmental, social or sustainability legal requirements (or international conventions or voluntary codes), and that such compliance is promoted in the investment policy.
SFDR makes no distinction as to whether products are tailored to specific preferences or requirements of end investors or not.
SFDR website disclosures be made keeping in mind the need to comply with data protection and with client confidentiality, where relevant. If an FMP is using standardised products solutions, transparency of those solutions might be a way to comply with the website disclosures requirements.
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