Learn more about the latest ESG updates from the SEC. ...
On December 4th, 2023, the European Securities and Markets Authority (ESMA) produced its final regulatory technical standards (RTS) regarding the Sustainable Finance Disclosure Regulation (SFDR).
The SFDR is a comprehensive set of standards aimed to increased transparency around green financial products and financial market participants’ activities in the EU. The SFDR was first drafted in 2019 and has a series of deliverables in tranches sinch 2021; its impact typically cascades down from financial services companies to private equity firms, public investee companies, and large private companies.
Financial Sector: The draft technical standards focus on a number of key areas, including: the addition and refinement of technical definitions around mandatory indicators to be disclosed, the requirement to provide greater clarity around the achievement of GHG emissions reduction, and enhancements to simplify client reporting.
Public & Private Companies: Changes in the technical criteria may lead to questions from your private equity firms, investors, and ratings agencies around the parameters surround ESG calculations of GHG emissions, water usage, hazardous waste, and others. Furthermore, a requirement to disclose what % of data is reported by companies versus what is estimated may prompt additional disclosure requests from those key partners. Lastly, an emphasis on social indicators may require you to gather additional data internally around wages, alignment with key ESG frameworks, and board diversity.
Principal Adverse Impact (PAI) changes:
GHG Emissions Reduction:
Do No Significant Harm (DNSH):
Pre-Contractual and Periodic Reporting Simplification:
The European Commission has until 4 March 2024 to endorse the changes. Thereafter, the changes would take effect 20 days after the final publication in the Official Journal of the European Union.
Financial market participants currently required to produce entity-level PAI reporting in addition to financial products with an Article 8 (promoting environmental or social characteristics) or Article 9 (sustainable investment objective) designation.
About the Authors
Matt Hartman is the Senior Environmental, Social and Governance (ESG) and Sustainability Manager with the Schneider Downs Risk Advisory Practice. Matt has more than 10 years of experience in corporate sustainability and reporting, development of ESG programs and ESG data sourcing and governance and has previously delivered initiatives in line with the Task Force on Climate-Related Financial Disclosures (TCFD), the Global Reporting Initiative (GRI), and the Sustainable Finance Disclosure Regulation (SFDR), amongst others. Matt can be reached at [email protected]
Tony Ielase leads the firm’s Risk Advisory Services (RAS) practice for the Columbus market and has over 25 years of experience providing risk advisory and compliance services to a diversified number of retail, manufacturing, higher education, healthcare, technology, utilities and financial services clients. His areas of expertise include internal audit strategic planning, internal audit co-sourcing, enterprise risk management, compliance assessments, fraud risk assessments, business process improvement and SOX program implementation and optimization, among others. Tony can be reached at [email protected]
With our industry expertise and extensive knowledge of the risk advisory landscape, the Schneider Downs team can help your organization perform a gap assessment relative to the finalized regulation, suggest areas of improvement and meet the the SFDR disclosure requirements.