Why Accuracy in SFDR Reporting is Crucial for Article 8 and 9 Funds: A Comprehensive Guide
As the financial industry adapts to the requirements of Regulation 2019/2088 on the Sustainable Finance Disclosure Regulation (SFDR), asset managers must now focus on finalizing annual reports that include periodic disclosures. These disclosures are essential for demonstrating compliance with ESG (Environmental, Social, and Governance) standards and providing transparency to investors.
Understanding SFDR Periodic Disclosures
According to the Zeidler Group, while many firms have become accustomed to preparing pre-contractual disclosures and updating their website information, periodic disclosures present unique challenges. Unlike pre-contractual materials, these reports are retrospective and require detailed quantitative data that accurately reflect ESG performance over the reporting year.
Key Requirements Under SFDR Delegated Regulation
The amended Commission Delegated Regulation (EU) 2022/1288, commonly known as the SFDR Delegated Regulation, mandates that funds categorized under Article 8 and Article 9 report annually on:
- Environmental or social characteristics they promote
- Sustainable investment objectives
These disclosures must be presented in predefined templates, specifically:
- Annex IV/III: For Article 8 funds
- Annex V/IV: For Article 9 funds
Submission Deadlines for UCITS and AIFs
Both UCITS (Undertakings for Collective Investment in Transferable Securities) and AIFs (Alternative Investment Funds) must include periodic disclosures in their annual reports and adhere to the following submission deadlines:
- UCITS Funds: Four months after year-end
- AIFs: Six months after year-end
The content of these disclosures should detail how the fund met its stated ESG characteristics or objectives, including:
- Data on principal adverse impacts (PAIs)
- Alignment with the EU Taxonomy
- Fulfillment of the “do no significant harm” (DNSH) principle
Challenges in Preparing Periodic Disclosures
Despite the structured nature of the templates, asset managers frequently encounter operational and interpretative challenges. Common issues include:
- Data gaps and inconsistencies
- Confusion over template requirements
- Misalignment between periodic and pre-contractual disclosures
- Outdated ESG data and overly generic language
- Missing information due to mid-year fund launches or strategy shifts
- Reusing pre-contractual content that does not reflect actual ESG outcomes
Importance of Accurate Periodic Disclosures
Periodic disclosures are vital for enhancing investor transparency. With increasing regulatory scrutiny regarding data quality and EU Taxonomy compliance, it is crucial for funds to ensure that their reports are:
- Consistent
- Evidence-based
- Detailed
For more insights into the challenges and strategies for preparing SFDR disclosures, visit the RegTech Analyst.
