SFDR Level 2 implementation postponed until 1 January 2023

This follows the EU Commission’s previous postponement of the SFDR Regulatory Technical Standards (RTS) from 1 January 2022 to 1 July 2022 and announcement to bundle all 13 SFDR/Taxonomy related level 2 RTS into a single delegated act.

John Berrigan, Director General of FISMA – Financial Stability , Financial Services and Capital Markets Union, at the European Commission, wrote: “Due to the length and technical detail of those 13 regulatory technical standards, the time of the submissions to the Commission, and to facilitate the smooth implementation of the delegated act by product manufacturers, financial advisers and supervisors, we would defer the date of application of the delegated act to 1 January 2023.”

SFDR is part of the EU initiative, Action Plan on Sustainable Finance, to leverage the underlying power of capital markets to meet its carbon emissions reduction targets and Level 1 was initially introduced on 10 March 2021. It aims to make disclosure of financial product performance on ESG aspects mandatory for financial market participants.

What happens next?

SFDR Level 2 still requires companies to report on 18 mandatory Principle Adverse Impact Statements (PAIS) of investment decisions at legal entity level by 30 June 2023 in respect of a reference period running from 1 January 2022 to 31 December 2022.

ESAs will update their SFDR Supervisory Statement (from February 2021) to explain how the industry will need to comply with the Level 1 obligations until the RTS applies (January 2023). They are aware that this guideline should have been published before the application date of the Level 1 taxonomy-related obligation (January 2022).

The reporting of sustainability preferences in accordance with MiFID II is still required from 2 August 2022 but it remains to be seen whether the application of the MiFID Suitability Assessment Rules will also be delayed.

Timeline for SFDR Level 2

• Jan. 2022: Taxonomy statement
• Jan. 2023: Application date for SFDR RTS (incl. SFDR reporting requirements for products according to Art. 8/9 SFDR)
• Jun 2023: PAI disclosure for reporting period 1 January 2022 to 31 December 2022

Timeline for other regulations

The reporting of sustainability preferences still applies as of August 2022 for the following regulations:

• IDD: Sustainability preferences in investment advice (target market) and considerations in product oversight and governance
• MiFID II: Sustainability preferences and risks in investment advice (target market) as well as PAI assessment in AIFMD / UCITS
• Solvency II: Sustainability considerations in Solvency II