ESAs propose amendments to the SFDR RTS

Continuing the theme of frequent changes to the application of the Sustainable Finance Disclosure Regulation (“SFDR”), the European Supervisory Authorities (“the ESAs”) are introducing amendments to the Level 2 Regulatory Technical Standards (“Level 2”). These amendments are separate from the current, and more wide ranging, consultations on the nature of the SFDR regime.


In April 2022, the European Commission mandated the ESAs to (1) develop draft regulatory technical standards (“RTS”) on the further disclosure of Principal Adverse Impacts (“PAI”) as set out in Level 2 and (2) introduce disclosure on funds’ decarbonisation targets. The ESAs issued a consultation on the proposed new rules in April 2023.

On 4 December 2023, the ESAs published their . However, the new proposals go beyond the initial mandate, taking into account feedback gained from Q&A as well as from regulators.Final Report addressing this mandate and proposing updated RTS

Key changes to the RTS cover:

  • Expanding the list of social indicators for PAI;
  • Amending a number of other existing PAIs, including their definitions, methodologies, metrics and presentation;
  • Enhanced disclosure on how sustainable investments “Do No Significant Harm” ( “DNSH”) to the environment and society;
  • New product disclosures of greenhouse gas (“GHG”) emissions reduction targets;
  • The simplification of the pre-contractual and periodic disclosure templates for financial products;
  • The implementation of other technical adjustments.

Changes to the PAI framework

The Final Report expands on the list of social indicators. These include, the amount of accumulated earnings in non-cooperative tax jurisdictions applying to investee companies, exposure to companies active in cultivation and production of tobacco, employees earning less than an adequate wage and gender gap pay.

The Report also contains useful clarifications, including:

  • The ESAs clarify that the value chains of investee companies only need to be included in the PAI calculations where the investee company reports on that value chain.
  • A number of technical adjustments to the PAI indicators are also suggested, including clarifications to the current indicators and on the treatment of derivatives in PAI indicators.

Changes related to the DNSH and the introduction of “safe harbour”

Taking into account feedback from the April 2023 consultation, the ESAs noted the need for more specificity to enhance compliance with the DNSH principle as it applies to “sustainable investments” made under Article 2(17) SFDR. The Report envisages the revision of the DNSH framework, although an important piece of work on DNSH is expected to come out of the current consultation on the overall SFDR framework, led by the European Commission.

In that context, the proposed amended RTS include a new requirement to disclose, in the website disclosure, either (i) the relevant thresholds or (ii) specific criteria for the PAI indicators used by the financial product to determine that its sustainable investments comply with the DNSH principle.

The Report also amends the RTS so that the existence of the “safe harbour”, which has been clarified by the Commission’s Q&A issued in June 2023, is reaffirmed. Such “safe harbour” provides that any investments in taxonomy aligned economic activities are automatically considered as “sustainable investments” under Article 2(17) SFDR.

In addition, the ESAs also confirm the two ways to calculate “sustainable investments” in a financial product, which may either look-through into the economic activities contributing to the sustainable objective, or investments in entire companies. The proportion of “sustainable investments” may thus either reflect the part of the portfolio composed of investee companies which are considered “sustainable” for instance by their corporate purposes, governance and activities, or the part of the portfolio composed of only the underlying activities of the investee companies that are considered “sustainable”.

Additional requirements relating to GHG emissions reduction targets.

Similarly to what was envisaged in the Consultation, the Report introduces new disclosures in pre-contractual documents, periodic reports and on the websites, in relation to GHG emissions reduction targets. The ESAs take the opportunity of the Report to confirm that the term “GHG emissions reductions” is preferred over “decarbonisation”.

The new templates require products to confirm whether they have a GHG emissions reduction target.

Products with such a target will be required to answer three new questions in the template.

It is important to note that these additional disclosures should not be confused with the additional requirements on financial products that have a decarbonisation objective under Article 9(3) SFDR, which remain subject to specific disclosures set out in the relevant template.

The additional required information covers specificities of the emissions reduction targets, which should have a maximum interval of five years between each target, and how the targets are achieved. In that respect, the disclosures are expected to state the approach applied to the GHG emission reduction within the following options:

  • after the initial security selection, reallocating assets with divestments from assets with particular GHG emissions levels and investments in assets with comparatively lower GHG emissions; or
  • reducing the GHG emissions at asset level over the duration of the investment, either
  • by investing in assets that are expected to deliver GHG emissions reductions over the duration of the investments, or
  • by engaging with investee companies to contribute to their GHG emissions reductions.

The ESAs confirm that the options are not exclusive so that a single product may select all three options or specify the other option that is used.

The Report adds disclosure requirements at all three level of disclosures, where the website disclosures will provide the most detailed information which will complement the pre-contractual and periodic disclosures. 

Simplification of the template and introduction of a dashboard

The ESAs also propose changes to the RTS templates which are intended to simplify the reading and reporting. The new RTS would implement a simpler language, via less complex disclosure and differently structured questions.

The revised template would now include a dashboard reflecting the key information on the first page of the document followed by more detailed disclosure in the following pages.

Four essential disclosures are included in the dashboard: the “sustainable investments”, the Taxonomy-alignment, the consideration of PAI and the GHG emissions reduction targets. The dashboard was tested among consumers from four Member States (Poland, France, Italy and the Netherlands) to anticipate any misleading elements. 

The ESAs also frame specificities for financial products with investment options, including provisions for insurance-based investment products and pension product. In case of an underlying product, the ESAs is of the opinion that the underlying option must disclose the financial product template in all cases.

Next step

The European Commission will study the suggested amendments to the RTS and decide whether to endorse them within three months following the publication of the Report. The draft RTS is expected to enter into force independently of the European Commission targeted consultation on the implementation of the SFDR and before the implementation of its assessments.

Consequently, the application of the revised SFDR RTS is unlikely to take effect before mid-2024. However, the entities in scope are recommended to already consider the potential changes to the SFDR disclosures of their existing funds that would be required and watch this topic closely.