Latest guidance on Sustainable Finance Disclosures (SFDR) for fund management companies


The European Commission (“EU Commission”), the European Securities and Market Authority (“ESMA”) and the European Supervisory Authorities (“ESA”) have recently published new (and eagerly anticipated) guidance for fund management companies on SFDR regulation[1].The trifold guidance (together, “Guidance”) included:

  • EU Commission Q&A (published on 25 May 2022): answers from EU Commission to ESA’s questions submitted in December 2021. The EU Commission Decision (C 2022) 3051 and Annex adopted on 13 May 2022 focused on Principal Adverse Impact (“PAI”), financial advisers and recommendations of financial products, transparency of the integration of sustainability risks and rules, good governance practices, and Articles 5 and 6 of Taxonomy Regulation (“Q&A“);
  • ESMA Supervisory Briefing (published on 31 May 2022): to ensure convergence across the European Union (“EU”) in the supervision of investment funds with sustainability features and in combating greenwashing by investment funds, guiding actions relating to: (a) fund documentation and material; and (b) integration of sustainability risks by Alternative Investment Fund Managers (“AIFMs”) and UCITS managers (“Supervisory Briefing”); and
  • ESA Clarification Statement (published on 02 June 2022): to provide clarification on the draft regulatory technical standards (“RTS”) issued under SFDR, which included the financial product disclosures under the Taxonomy Regulation (“TR”)[2] (“Clarification Statement”).

The Guidance sought supervisory convergence in financial services across the EU. It provided clarity in several SFDR provisions, with direct and indirect advice (through National Competent Authorities (“NCAs”) guidance) for fund management companies.

take-aways for fund management

The Guidance should be applied by fund management companies in accessing their current sustainable finance disclosures and frameworks, according to the expectation of NCAs.

  • EU Commission Q&A and ESA clarification statement

Following several requests for clarification from stakeholders, ESA and The EU Commission provided clarifications on critical areas of the interpretation of Regulation (EU) 2019/2088 and Regulation (EU) 2020/852 about content, methodologies, and presentation of disclosures.

  • PAI – Principal Adverse Impact

EU Commission confirmed that market participants below the thresholds for mandatory disclosures concerning the PAI of investments decisions on sustainability factors and who choose not to include PAI at an entity level, could indicate that they consider PAI at the product level only for a specific subset of financial products, without triggering SFDR obligations at the entity level.

ESA indicated that all investments (direct or indirect) should be included in the PAI calculations (considering the companies that integrate PAI). The section should contain details of the best efforts to obtain information where the information is unavailable. Additionally, it should also include presented clarifications regarding the methodology to calculate indicators for disclosure of PAI.

  • Pre-contractual and Periodic Disclosures

Investments objectives and characteristics

ESA informed that where a financial product promotes environmental or social characteristics or commits to sustainable investment objectives, there should be relevant pre-contractual and periodic disclosures, including the proportion of investment used to attain promoted characteristics and the purpose of the remaining investments. The EU Commission has already stated that financial products with sustainable investment objectives should only make sustainable investments.

Taxonomy-aligned Investments

The Clarification Statement confirmed that the “minimum proportion” of taxonomy-aligned investments disclosed in pre-contractual financial product disclosures are binding commitments. The penalties for failing to respect such commitments should be set out in the UCITS and AIFMD frameworks.

Periodic Report Disclosures

EU Commission confirmed that annual reports should disclose any taxonomy-aligned investments, irrespective of pre-contractual disclosures.

  • Taxonomy-related Disclosures

Taxonomy-related pre-contractual and periodic report disclosures

The EU Commission confirmed that all funds under Articles 8 and 9 of the SFDR scope (promoting environmental characteristics and/or with a social objective) should comply with Taxonomy-related disclosure obligations.

Closed Funds

The Q&A confirms that closed funds are not required to comply with the pre-contractual disclosure obligations in the SFDR and Taxonomy Regulation. However, the periodic reports of closed funds within the scope of Article 8 or Article 9 must comply with such disclosure obligations.

Absence of reliable data

For the purpose of disclosures, if the fund fails to collect reliable data, the pre-contractual and periodic disclosure must indicate zero, and negative justifications should not be included. In the case of later taxonomy-aligned investments, the fund should update the pre-contractual disclosures in accordance with the UCITS/AIFMD rules.


The Q&A has confirmed that estimates can be used in “exceptional cases”, – defined as “where the financial market participant cannot reasonably obtain the relevant information to reliably determine the alignment with the technical screening criteria established under that Regulation as far as economic activities carried out by undertakings that are not subject to that Regulation are concerned”.

Only in this case, the funds are allowed to make complementary assessments and estimates based on information from other sources, which shall compensate for limited and specific parts of the desired data elements and produce a prudent outcome.

  • Do not significantly harm (DNSH) Disclosures

The obligations of fund management companies to disclose how they consider PAI indicators in relevant pre-contractual disclosures when assessing if an investment does or does not significantly harm environmental or social objectives were unclear.

The best practice recommended by ESA Clarification Statement is that DNSH could be disclosed by extracting PAI indicators from Table 1 of Annex I and any additional relevant indicators from Table 2 and 3 of Annex 1 and show the impact of the sustainable investments against those indicators. This proves through appropriate values (e.g. compliance with Climate Delegated Act and Complementary Climate Delegated Act) that the investment does not significantly harm environmental or social objectives.

The DNSH assessment should apply to all sustainable investments and include whether the investments are aligned with the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights.

  • ESMA Supervisory Briefing: regulatory framework

The ESMA Supervisory Briefing is addressed to NCAs to enhance supervisory convergence, promoting a common culture, practices, and approach across the internal market. It indirectly assists fund management companies in anticipating some regulatory expectations for SFDR.

ESMA provided guidance to NCAs for the supervision of fund documentation and marketing material, as follows:

  • Verification of the Compliance of the pre-contractual disclosures

To assess the information to be provided in pre-contractual disclosures, the Supervisory Briefing invited NCAs to create a checklist to verify at least:

  • a prominent statement referring to sustainability information (prospectus Annex) is also included in the main body of the prospectus;
  • pre-contractual templates are properly completed;
  • the description of how the sustainability risks are integrated into investment decisions and their results on the fund’s return;
  • environmental and/or social characteristics promoted by the fund are clearly stated and sufficiently explained;
  • a clear strategy to attain objectives is identifiable in the Annex;
  • PAI indicators have been considered, if relevant;
  • description of the policies to assess the good governance in investee companies;
  • taxonomy alignment disclosure has been included when applicable; and
  • Verification of the consistency of information in the fund documentation and marketing material.

NCAs should assess that sustainability-related disclosure is accurate and consistent across the fund documentation and marketing materials. To perform such assessment, ESMA suggests that NCAs should consider:

  • Sustainability-related disclosures presentation: should (a) be clear, succinct, fair and not misleading, (b) not include boilerplate language; (c) have limited use of cross-reference and hyperlinks; (d) not require an additional search for information; and (e) indicate to under which SFDR the fund discloses relevant information;
  • Fund Naming: only themes or objectives that are reflected fairly and consistently in the fund’s investment objectives and policy and its strategy as described in the relevant fund documentation;
  • Investment objective policy: should be included in the fund documentation and must clearly identify those objectives; and
  • Investment strategy: should clearly state how the strategy is linked to sustainable objectives or characteristics, such as investment universe (limits and thresholds), screening criteria used, specific ESG characteristics, use of benchmarks, and stewardship approach.
  • Verification of the Compliance with the website disclosures’ obligations

NCAs should verify if information and summary are published accordingly and if requirements are complied with by fund managers (Article 25-36 and 39-49 SFDR).

  • Integration of Sustainability risks by AIFMs and UCITS Managers

Supervisory controls should involve risk-based, desk-based and/or on-site reviews (UCITS and AIFMs) regarding investment due diligence, risk management, remuneration, recruitments and HR, organisational structure and decision-making, internal reporting and record-keeping, conflict of interest, delegation monitoring, accounting and valuation, costs and fees, reporting to NCAs, and internal control functions and regular control by senior management.

  • Regulatory intervention in case of breaches

To combat greenwashing, ESMA recommends that NCAs appropriately consider: (a) absence of the SFDR disclosure; (b) misleading disclosures (significant discrepancy between investments and disclosures); (c) lack of integration of sustainability risks; (d) SFDR disclosures do not match the objectives in the fund documents; and (e) a significant part of the investment is not compliant with sustainable investment criteria.


The Guidance promotes supervisory convergence to combat greenwashing. Fund management companies should assess their sustainable finance frameworks, names, the integration of sustainability risks, and fund documents and marketing materials to ensure they comply with the upcoming inspections.

To review the ESMA Supervisory Briefing, please click here.

To review the EU Commission Q&A, please click here.

To review the ESAs Clarification Statement, please click here.

For more information and any guidance or advice on SFDR, Cleveland & Co External in-house counsel™, your specialist outsourced legal team is here to help.

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[1] Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector.


[2] Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment.


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