Sustainable Finance Disclosure Regulation (SFDR)

As of 10 March 2021, many financial market participants and financial advisers will be subject to new disclosure obligations following the entry into force of the EU Sustainable Finance Disclosure Regulation (SFDR) on 29 December 2019.

The SFDR sets rules on transparency with a view to promoting both the integration of sustainability risks into investment processes and disclosures to investors.

In order to support the SFDR processes DEX Data Explorers offers DEX Regulatory Suite for SFDR. DEX RS generates regulatory reports using the SFDR specifications.

 

web-banner-2018-sustainable-finance-promo en

 

Action plan for Financing Sustainable Growth

Implementation of the European Commission's (EC's) Action Plan on Sustainable Finance, which was adopted in March 2018, is underway, with support from an approved package of four legislative measures in May 2018, including on:

  • A unified EU classification system ('taxonomy');
  • Investors' duties and disclosures;
  • Low-carbon benchmarks; and
  • Better advice to clients on sustainability.

The Action Plan on Sustainable Finance has three objectives:

  1. To reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth;
  2. To manage financial risks stemming from climate change, environmental degradation, and social issues; and
  3. To foster transparency and long-termism in financial and economic activity.

The activities in the action plan are shown below. Implementation of the Sustainable Finance Disclosure Regulation (SFDR) is one of the activities in the action plan.

SFDR actionplan

 

Planning Sustainable Finance Disclosure Regulation

As of 10 March 2021, many financial market participants and financial advisers will be subject to new disclosure obligations following the entry into force of the EU Sustainable Finance Disclosure Regulation (SFDR) on 29 December 2019.esma

The SFDR sets rules on transparency with a view to promoting both the integration of sustainability risks into investment processes and disclosures to investors.

On 4 February 2021, the European Supervisory Authorities EBA, EIOPA and ESMA (collectively the ESAs) published the Final Report, including the draft Regulatory Technical Standards (RTS), on the content, methodologies and presentation of disclosures under the EU Regulation on sustainability-related ebadisclosures in the financial services sector (SFDR).

Implementation of SFDR has the following timeline:

  • March 10, 2021: Effective date of the SFDR regulation. Financial Market Participants [FMPs] and Financial Advisers [FAs] can start considering principal adverse impacts;
  • June 30, 2021: Latest date by which FMPs and FAs (with more than 500 employees on group level) must start considering EIOPAprincipal adverse impacts. This is the final moment to start data collection;
  • December 31, 2021: First reference period ends;
  • January 1, 2022: Second reference period starts;
  • June 30, 2022: The final date on which FMPs and FAs need to report for the first time, through the adverse sustainability impacts statement, their performance on entity level on various ESG indicators accompanied with textual explanations and commentaries;
  • December 31, 2022: Second reference period ends;
  • June 30, 2023: The final date by which FMPs and FAs need to report for the second time. In addition from this moment onwards they'll need to make a comparison between the first and second reference period.

 

SFDR Disclosures

In SFDR the following disclosure obligations apply:

  • Sustainability risk integration disclosure: requiring entities to disclose information on their website about their policies concerning the integration of sustainability risks in their investment decision-making process.
  • ESG Product pre-contractual disclosure: requiring entities to include in their pre-contractual information packages certain information, including:
    • how a product claiming environmental or social characteristics does in fact meet those characteristics;
    • where an index has been designated as a reference benchmark, information on whether and how
    • the index is consistent with those characteristics;
    • information as to where that index can be found.
  • Product website disclosure: requiring FMPs to publish on their websites certain information, including:
    • the characteristics or objective of the product;
    • the investment strategy;
    • the due diligence carried out on the underlying assets of the financial product;
    • the methodologies used to assess, measure and monitor the environmental or social characteristics or the impact of the sustainable investments selected for the financial product, including relevant data sources.
  • Periodic disclosure: requiring FMPs to periodically report (under sector-specific legislation) and involving a mandatory reporting template, a granular list of items to be included, with the focus on the product's level of success in meeting its sustainable characteristic.

 

DEX Regulatory Suite for SFDR

In order to support the SFDR processes DEX Data Explorers offers DEX Regulatory Suite for SFDR. DEX RS generates regulatory reports using the SFDR specifications.

SFDR Menu

 

Product website disclosure

DEX RS for SFDR supports the product website disclosure: financial institutions can maintain the SFDR characteristics in DEX RS and can generate a report based on this information which can be published on their website. An example of this disclosure is show below.

SFDR website EN

 

Periodic disclosure

DEX RS for SFDR supports the periodic disclosure which can be submitted to the regulator. An example of this disclosure is show below.

DEX Data Explorers maintains the definitions of the reports according to the regulator standards. When updates to the standards are submitted, you as a customer will receive an update on the set of reporting definitions.

SFDR report

 

SFDR Knowledge base

Financial institutions have to deliver SFDR information about investment funds. This information is not always available and has to be requested at different parties.

We propose a federated system where DEX Data Explorers operates a SFDR repository where financial institutions can request SFDR information about investment funds.

Financial institutions have a local database provided by DEX where they can store information about their own funds and funds they have requested information about.

DEX will provide software to financial institutions which can send information requests, process the responses and which enables financial institutions to add SFDR information manually.

The central system at DEX will process information requests, forward information requests to associated parties and send the responses to the requesting party. Also DEX will collect and add information manually when necessary. This process is shown below.

 

SFDR proces EN

 

Full lineage

DEX RS stores the full lineage of the values in the reports. This means that you can trace back the values of the reports to the original source data records that constitute a value in the report. This is a very useful feature which enables you to analyze the reported values. In the example below a part of the Principal adverse sustainability impacts statement is shown.

SFDR lineage1

 

The lineage of the selected cell value is shown. The sum of the values marked blue is the value in the report.

SFDR lineage2

 

Design your own reports

On top of delivering the required regulatory reports DEX RS offers you the possibility of designing you own reports. This way you can reuse the data you use for regulatory reports for e.g. internal reports. Below the design screen is shown. You can add you own columns, or create a copy of an entire report and change it for internal use.

You can also add your own validations.

SFDR design

 

Graphs

DEX RS offers the possibility to design graphs using the data in DEX RS. You can for example create graphs comparing data over different reporting periods, or sums or averages of data grouped per category.

SFDR graphics

 

Available solutions

DEX Regulatory Suite supports the following regulations:

1. Sustainable Finance Disclosure Regulation (SFDR)

2. Securities Financing Transaction Reporting (SFTR)

3. EMIR

4. MiFID ii

5. CRD iv (COREP, FINREP, Funding Plans, Asset Encumbrance, Supervisory Benchmarking Portfolio)

6. AnaCredit

7. Monthly security reports

8. Residential Real Estate

9. Deposit Guarantee Scheme

10. Social Economic Reports

11. Dutch Digital Reporting (DRA)

12. Solvency

13. IORP ii

14. Country Risk

15. Financial assessment scheme (FTK)

16. Premium pension institutions (PPI)

17. Tax reporting (VIA, Fatca)

18. Prospectus data

 

Addition Knowledge House and DEX Regulatory Suite

Addition Knowledge House (www.addition.nu) is a reseller of DEX Regulatory Suite. Addition Knowledge House delivers the following services with regards to DEX Regulatory Suite:

  • implementation support
  • maintenance
  • business process outsourcing