Sustainable Financial Disclosures: Key Deadlines For Global Investment Managers – Finance and Banking


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As part of the EU’s “Sustainable Action Plan”, a
sustainable finance disclosures regulation (“SFDR”) will
come into effect from 10 March 2021 which will impact EU managers,
global managers with affiliates in the EU or marketing funds in EU
Member States.

We are now less than six months away from a major regulatory
deadline (10 March 2021) which will impact EU
managers and also global managers with affiliates in the EU or
marketing funds in EU Member States.

This update will provide clarity on:

  • What you need to do;

  • When it needs to be completed;
    and

  • How the Maples Group can assist.

Executive Summary

As part of the EU’s “Sustainable Action
Plan”1 a sustainable finance disclosures regulation
(“SFDR”2) will come into effect from 10 March
2021.

SFDR prescribes mandatory disclosures to be made by managers and
investment funds3 relating to sustainable investments
and sustainability risks.

It aims to harmonise information available to investors in this
regard; promote the sale of sustainable products; and eliminate the
risk of “greenwashing”.

As a result, SFDR provides significant opportunities for
managers seeking to raise capital in this area. However, it also
provides challenges in terms of compliance or navigating the
disclosure of risks where funds and financial products do not have
sustainable investment strategies.

Scope of SFDR

SFDR applies both at the level of the manager and also the
investment funds or financial products they manage.

It introduces requirements for a wide range of entities
providing investment management and advisory services to clients,
including AIFMs, UCITS management companies, investment firms
authorised under MiFID providing portfolio management
services (collectively referred to as “financial market
participants”) and firms providing investment advice
services under MiFID (“financial advisers”).

The scope is extremely broad and managers of all major
strategies and funds will be caught, e.g. hedge, private equity,
credit, real estate, infrastructure and funds of funds. It also
applies where these managers are acting as delegates and if
managing segregated accounts.

Extraterritorial Effect

The principal impact is on EU asset managers and their UCITS,
AIFs or MiFID products.

However, SFDR may also have implications for non-EU asset
managers, particularly where they have EU affiliates or market
their funds or financial products into the EU.

For example, a US manager of a Cayman fund marketed in the EU on
a private placement basis (under the National Private Placement
Regime) will be in scope for certain aspects of SFDR.

Does it only apply to ESG-Focussed Funds?

No. SFDR contains requirements that apply specifically to funds
that have a sustainable finance focus or objective (see below).

However, other aspects apply to all in-scope managers and
investment funds, meaning firms with no particular focus or agenda
on ESG/sustainable finance are still required to consider the
impact of SFDR and make appropriate disclosures.

The specific requirements which apply to certain types of
“ESG-Focussed Funds”, can be summarised as follows:

(i) ESG-labelled investment funds (i.e. investment funds which
promote environmental or social characteristics);

(ii) Sustainable investment funds (i.e. investment funds with a
sustainable investment objective); and

(iii) Carbon reduction investment funds (i.e. investment funds
that aim to reduce carbon emissions).

Key Points

There are three key elements of SFDR that managers will need to
consider:

  • Website disclosures
    – to include disclosure on: (i) how the firm integrates
    sustainability risk into the investment process; (ii) how the firm
    integrates sustainability risk into its remuneration policy; and
    (iii) for any ESG-Focussed Funds it manages, details on the ESG
    objectives of these funds and how they are measured.
  • Offering documentation /
    pre-contractual disclosures
    – to include disclosure
    on (i) how sustainability risks are factored into investment
    decisions; (ii) the adverse sustainability impact of the investment
    decisions; and (iii) for any ESG-Focussed Funds it manages, details
    on the ESG objectives of these funds and how they are
    measured.
  • Annual report
    disclosures
    – the annual report of an ESG-Focussed
    Fund will need to provide details of how the relevant ESG
    objectives are being met.

Timing – New Two Phase Process

SFDR provides for high-level or “Level 1” legal and
regulatory principles on sustainable disclosure requirements.

However, much of the specific detail on form and precise content
are yet to be agreed in “Level 2” or “Level 3″
measures, guidance and regulatory technical standards.

The timetable for agreement and publication was very tight, even
before the Covid-19 pandemic and the delays it has understandably
caused to the regulatory process.

These delays led to strong industry calls to push back the March
2021 deadline and set out a revised timetable for
implementation.

The European Commission has listened to some of these arguments
but, at the same time, wishes to continue to strongly advance the
sustainable finance agenda.

A phased approach is now proposed where relevant entities
proceed to:

(a) Firstly, comply with the high level and principle-based
requirements in SFDR within the existing timeframe (i.e. by 10
March 2021) (“Phase 1”); and

(b) Subsequently, comply with the more detailed requirements
once the final regulatory technical standards are published (now
expected to be 1 January 2022) (“Phase 2”).

How can the Maples Group help?

We can advise both EU and non-EU asset managers on the scope of
SFDR and the practical and legal steps required to ensure
compliance.

In terms of immediate steps, this will involve consideration of
the Phase 1 obligations and how these disclosure requirements can
be met before the 10 March 2021 deadline.

The Maples Group has also produced a Guide to the Sustainable
Finance Disclosures Regulation in conjunction with AIMA and members
of the European Technical Expert Group. This is available on
request from us or, (for AIMA members) from here.

Additional materials are available at our ESG resource
hub
.

Further Information

Should you have any queries or comments on the implications of
SFDR or the impact of the European Commission’s Sustainable
Action Plan on your business, please feel free to contact any of
the team below or your usual Maples Group contact.


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Footnotes

1. See our resource centre for further details. https://maples.com/en/Services/Specialty-Services/ESG

2.
EU/2019/2088, as amended.

3. SFDR applies to an extremely broad
category.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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