EU Commission answers ESA questions on SFDR interpretation

In September 2022, the ESAS jointly submitted questions to the eu commission about the interpretation of the SFDR. the answers to those questions have now been published, including amendments to previously circulated answers.


On 14 April 2023, the EU Commission ("EC") published a decision annexing their answers_ to the questions requiring interpretation of EU law submitted on 9 September 2022 by the European Supervisory Authorities ("EBA", "EIOPA" and "ESMA", together the “ESAs”). The publication provides explanations about key elements of the sustainable finance regulatory framework.

In addition, the decision includes amendments_ to answers published in July 2021 and May 2022 (in annex II).

Key points

The newly provided answers include the following clarifications by the EC:

  • Key sustainable finance terminology and definitions: SFDR does not prescribe a specific approach or minimum requirements regarding the main parameters defining a ‘sustainable investment’ (i.e. (i) contribution, (ii) do no significant harm, and (iii) good governance). Financial market participants must conduct their own assessment of their financial products and disclose the underlying assumptions. Although already anticipated by the market, the answer also formally confirms that the notion of sustainable investment can be measured at the level of a company and not just at the level of the specific economic activity.
  • Scope of Article 9(3) SFDR: financial products with a reduction in carbon emissions as their objective can fall within the scope of Article 9(3), regardless of whether they use a passive or active investment strategy. Where no Paris-Aligned Benchmarks or Climate Transition Benchmarks are passively tracked, SFDR requires financial market participants to, among others, clearly explain the extent to which a financial product complies with the methodological requirements set out in Delegated Regulation 2020/1818.
  • Scope of Article 8 SFDR: Article 8 does not limit the types of characteristics that can be promoted, and they can include carbon emissions reductions.
  • Scope of the product level consideration of Principal Adverse Impacts (PAIs): the description relating to the consideration of PAIs must include a description of both the adverse impacts and the procedures put in place to mitigate those impacts.
  • Frequency of periodic disclosures for portfolio management services: the reporting frequency obligation for portfolio management services in the context of Article 11 SFDR is yearly. Since the regular report is produced on a quarterly basis, the SFDR template will need to be annexed to every fourth report.

The amendments to previously published answers comprise:

  • Cosmetic changes to answers regarding the design of Article 9 SFDR products (from July 2021).
  • Cosmetic changes to answers regarding the application of Articles 5 and 6 of the Taxonomy Regulation (from May 2022).

The many updates issued recently at European level within a short space of time demonstrate the fast-moving nature of the sustainable finance regulatory regime.

Access the Commission Decision here_
Access Annex I with answers on the interpretation of EU Law here_
Access Annex II with amendments to previously published answers here_

Stéphane Badey

Gilles dusemon

Lara Forte

Isabelle Lebbe