SECTION 4 : ESG REGULATION
What ‘ level 2 ’ SFDR requirements mean for ETF investors
Asset managers have a race against time to ensure they are ready for the next phase of SFDR , but what will be the impact of the new requirements and how should ETF investors interpret these ?
Author : Theo Andrew
Of the many plates asset managers are currently spinning when it comes to ESG regulation , the impending upgrade of the Sustainable Finance Disclosure Regulation ( SFDR ) is requiring their most immediate attention .
Having already been delayed by six months until January 2023 , due to the “ length of technical detail ” of the directive , the race is now on to be compliant with the regulations with less than three months to go .
In a bid to help with this , both the Central Bank of Ireland ( CBI ) and the Central Bank of Luxembourg ( CBL ) have said they would fast-track SFDR fund updates , with asset managers required to submit their amendments to the regulators by 1 December to be ready for ‘ level 2 ’ of the regulation . Despite this , asset managers are having to grapple with ambiguous and ever-changing definitions within SFDR and the EU Taxonomy , which aims to clarify what investments are environmentally sustainable .
In September , the European Supervisory Authorities ( ESA ) sent fresh questions to the European Commission over key aspects of the regulation , many of which have not yet been answered .
Previous clarifications around the regulation have , in some cases , led asset managers to downgrade their ETFs from ‘ dark green ’ Article 9 to ‘ light green ’ Article 8 , or from Article 8 to ‘ non-ESG ’ Article 6 , while failure to meet the new standards could also inflict downgrades on funds .
Now , with the level 2 requirements impending , what will the changes mean for ETF investors ?
26 ESG Unlocked : Europe out in Front October 2022