ESG disclosures: SFDR templates for precontractual and periodic product information
On 21 September 2020, the European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) published a consultation package seeking public feedback on presentational aspects (the layout) of product templates for ESG-products (Art. 8) and Sustainable Investment-products (Art. 9), to be used pursuant to the Regulation on sustainability‐related disclosures in the financial services sector (SFDR).
The consultation package includes:
- Three preliminary, illustrative mock-ups of pre-contractual and periodic disclosure templates of products promoting Environmental and/or Social (E/S) characteristics (under Article 8 and Article 11 of the SFDR):
- An online survey
Use of templates
The templates must be used by financial market participants (i.e. investment and credit institutions that provide the service of portfolio management, management companies of AIFs, UCITS, Eltifs, EuVeca funds, IORPS, manufacturers of pension products, PEPP providers and insurance undertakings providing IBIPs) to be included in their existing disclosures.
Content of templates
The templates contain the mandatory information to be included pursuant to the draft Regulatory Technical Standards (RTS) on ESG disclosures (Draft RTS) in precontractual and periodic disclosures for ESG-Products. No Mock-up templates are included in the consultation package for Sustainable Investment-products (Art. 9) as it is confirmed that the templates for those products are very similar to the templates presented for the ESG- products.
Precontractual information templates
In summary the templates reflect the requirements reflected in articles 14 – 22 of the draft RTS and are built up as follows:
- A mandatory disclaimer reflecting that the product does not have as its objective sustainable investment;
- Followed by an ask-and-answer grid containing information that answers the following questions:
- What environmental and/or social characteristics are promoted by this financial product?
- What investment strategy does this financial product follow?
- What investment strategy does this financial product follow to meet the E/S characteristics?
- What are the binding elements for the investment selection?
- How is the strategy implemented in the investment process on a continuous basis?
- Is there an amount of potential investments excluded, as a result of the implementation of the selection criteria?
- What is the policy to assess good governance practices of the investee companies?
- What is the minimum asset allocation planned for this product?
- Including graphical representation
- In which economic sectors are the investments made?
- Does this financial product make use of derivatives?
- If yes, how is the use of derivatives aligned with the E/S characteristics?
- What investments are included under “#2 Remainder”?
- How will sustainable investments contribute to a sustainable objective and not significantly harm any other sustainable investment objectives during the reference period?
- How will sustainable investments of the financial product contribute to a sustainable objective?
- How are investments excluded that significantly harm sustainable investment objectives?
- What sustainability indicators are used to assess the E/S characteristics of this product?
- Can I find on-line more product-specific information?
- Is a specific index designated as a reference benchmark to determine whether this product is sustainable?
Periodic disclosure template
In summary the template reflects the requirements reflected in articles 36 – 42 of the draft RTS and is built up as an ask-and-answer grid containing information that answers the following questions:
- To what extent were the environmental and/or social characteristics promoted by this financial product met?
- How did the investments contribute to the sustainable characteristics and how did the sustainability indicators perform?
- Including historical comparison.
- What were the top 25 investments of this financial product?
- What was the proportion of sustainability-related investments?
- What was the asset allocation?
- In which economic sectors were the investments made?
- Including graphical representation
- What investments were included under “remainder”?
- How did sustainable investments contribute a sustainable objective and did not significantly harm any other sustainable investment objectives?
- How did the sustainable investment of the product contribute to a sustainable objective?
- How were principal adverse impacts taken into account?
- Where any investments excluded due to their significant harm to sustainable investment objectives?
- How did this financial product perform compared to the reference sustainable benchmark?
- How does the reference benchmark differ from a broad market index?
- How did this financial product perform compared with the reference and broad market benchmarks?
- What actions have been taken to meet the environmental and/or social characteristics during the reference period?
The ESA’s are of the view that the use of such mandatory templates will improve comparability of different financial products in different EU Member States. The ESA’s note that the final content of the templates is subject to the outcome of a concurrent consumer testing exercise and the ESAs’ final report on the draft RTS under SFDR.
The survey is open for comments until 16 October 2020.