When SFDR initially came into force, investors had a choice whether or not to comply. But as the law enters its level 2 phase, investors are now facing several new ESG disclosure requirements – and this time, they're mandatory.
On January 1st, 2023, the EU’s Sustainable Financial Reporting Directive (SFDR) entered its level 2 phase. So, now what?
In short, financial market participants (FMPs) with more than 500 employees will be obligated to disclose their ESG information as set out by the SFDR. Previously, they could use the “comply or explain” principle. But now with level 2 fully in force – firms covered by the powerful EU law no longer have the option to merely explain their processes – they have to show how they're enacting them.
What is SFDR level 2?
SFDR level 2 can basically be understood as the mandatory implementation of the SFDR’s Regulatory Technical Standards (RTS **). The RTS lays out the detailed annual reporting disclosure requirements that in-scope firms must comply with. Ultimately, the goal of making the RTS mandatory is to ensure the market gets all the information they need to make informed decisions, and that they understand the sustainability of financial products.
** A regulatory technical standard “is a delegated act, technical, prepared by a European Supervisory Authority.
This blog is an extract from: https://blog.worldfavor.com/sfdr-level-2-what-investors-need-to-know#:~:text=What%20is%20SFDR%20level%202,scope%20firms%20must%20comply%20with.
Comments