The EU Regulation on sustainability-related disclosure requirements in the financial services sector has been applicable since March 2021. Some ambiguities in the interpretation of this regulation, especially those raised by the European supervisory authorities (ESA, EBA and EIOPA) in recent months, are addressed by the European Commission with the Q&As published at the end of July 2021. 

In their request of 7 January 2021 - thus already two months before the Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27.11.2019 on sustainability-related disclosure requirements in the financial services sector (“SFDR”) entered into force - the European supervisory authorities for the banking and financial services sector (ESA, EBA and EIOPA) addressed questions to the European Commission on the interpretation of certain regulatory areas of the SFDR. In its response to the questions, the European Commission sought to clarify these ambiguities, addressing the following points in particular:

Scope of application to non-EU Alternative Investment Fund Managers (AIFMs) and sub-threshold AIFMs

The European Commission clarifies that the SFDR also applies to non-EU AIFMs marketing their funds in the European Union under their national private placement regimes. However, it does not clearly answer whether compliance with the SFDR for non-EU AIFMs must be considered at the manager/company level (e.g. Art. 3 and Art. 5 of the SFDR) in addition to the product level (e.g. Art. 6, 8, 10 and 11 of the SFDR). This would mean that non-EU AIFMs would have to publish certain information on their website regarding the handling of sustainability risks in investment decisions, risk management and remuneration policy in accordance with the SFDR. 

Furthermore, the entire provisions of the SFDR shall apply to sub-threshold AIFMs, i.e. AIFMs not subject to licensing requirements with assets of up to EUR 100 million (incl. leveraged finance) or EUR 500 million (excl. leveraged finance).

Application of the threshold of 500 employees pursuant to Article 4 (4) SFDR to the reporting of parent companies of large groups 

When assessing the number of employees pursuant to Art. 4 (4) SFDR, the employees of subsidiaries with their registered office both within and outside the European Union are to be taken into account. The European Commission also states that only parent companies that are themselves financial market participants or financial advisors as defined in the SFDR are covered by this regulation. The extent of the parent company’s disclosure obligations comprise the economic activities at the level of the parent company and not those at group level.

Article 8 SFDR financial products 

Art. 8 of the SFDR covers financial products with environmental or social features (so-called "light green" financial products) that are "promoted" as such. The SFDR itself, however, does not clarify the scope of such "promotion". In the Q&As, the European Commission takes the view that "promotion", for example, encompasses "direct or indirect claims, information, reporting, disclosures as well as an impression that investments pursued by the given financial product also consider environmental or social characteristics in terms of investment policies, goals, targets or objectives or a general ambition" that must be disclosed in any of the media enumerated therein, such as “disclosed in any of the enumerated media...regardless of the form used, such as on paper, durable media, by means of websites, or electronic data rooms”.

This broad interpretation of the European Commission of the term "promotion" means, on the one hand, a relief for financial market participants who seek to distribute Art. 8 financial products and, at the same time, an increased due diligence requirement for those financial market participants who wish to avoid the application of the SFDR. At best, the use of disclaimers can help to avoid giving such an "impression" of pursuing environmental or social features or objectives when marketing a financial product.

Article 9 SFDR financial products

With regard to Art. 9 of the SFDR, which regulates the transparency obligations for sustainable financial products with an intended sustainability effect (so-called "dark green" financial products), the European Commission clarifies that in addition to sustainable investments in the narrower sense, investments for hedging or liquidity purposes may also be covered by this provision, provided that these are compatible with the general objective of the fund to invest in sustainable investments. This indicates that investments of Art. 9 financial products must predominantly flow into sustainable investments, but there is still room for investments that meet environmental or social minimum criteria.

Confidentiality obligations towards the client of an individual portfolio

The European Commission states that the disclosure of information on the website must ensure compliance with EU law and national data protection law and, where applicable, also the confidentiality owed to customers. This means that, in principle, a certain degree of confidentiality of website information, e.g. through a login obligation, can also be compliant, provided that there are concrete concerns regarding confidentiality.

Overall, the clarifications of the European Commission are to be welcomed, as they bring increased clarity for the concrete application of the SFDR. Particularly noteworthy is the Commission's position that for the purposes of the classification of financial products according to Art. 8 SFDR, the term "promotion" is to be interpreted very broadly.