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In brief

The European Commission has sent a letter to the European Parliament and the Council of the EU announcing a delay to the date of application of regulatory technical standards (RTS) under the Sustainable Finance Disclosure Regulation (SFDR). The Commission has now deferred implementation of the SFDR RTS to 1 January 2023.


The “Level 1” text of the SFDR already requires “financial market participants” to make certain disclosures as to whether a financial product should be classified as an Article 6 (no sustainability objective), Article 8 (promoting environmental or sustainable characteristics) or Article 9 (sustainable investment as its objective) product, and whether they disclose the principal adverse impacts (PAIs) of their products.  Whilst EU regulated firms are primarily within direct scope of the definition of a “financial market participant”, SFDR disclosures also apply directly to non-EU firms marketing funds into the EU under national private placement regimes.  In addition, pressure from EU-based investors may lead non-EU firms to decide to voluntarily comply with SFDR disclosure standards; EU institutional investors in particular are increasingly expecting external portfolio managers to label their offering as Article 6, Article 8 or Article 9 regardless of whether the portfolio manager is directly within scope of the SFDR.

The SFDR RTS is key to setting disclosure standards as it sets out the content, methodology and presentation of Article 8 and 9 disclosures, along with PAI disclosures. The letter from the European Commission confirms the following:

  • Format of the RTS: the European Supervisory Authorities (ESAs) had previously submitted draft RTS in two tranches – the first was in February 2021 and the second was in October 2021. The letter notes that draft RTS from February and October will be merged into a single instrument and adopted in that form.
  • Delay in application: the Commission notes that it has not had enough time to consider the draft RTS submitted in October 2021, and will delay the applicability of the RTS. The SFDR RTS will apply from 1 January 2023, with financial market participants having to disclose PAIs and the sustainability features of their financial products for the first time by 30 June 2023. That first PAI disclosure would need to cover the first reference period under the RTS – 1 January 2022 to 31 December 2022 – which means that firms will need to start gathering relevant data from 1 January 2022.

Impact of the SFDR RTS delay

Many firms have had to make certain disclosures from March 2021 as a result of implementation of the Level 1 SFDR obligations, and will be well placed to prepare for transition to the requirements to be set out in the RTS. However, while the general delay to what will be complex and technical requirements is no doubt welcome, the timing of the PAI disclosures presents a more pressing issue: the initial PAI disclosures are required to be published by 30 June 2023, but the data that goes into this initial disclosure will need to stretch back to 1 January 2022, leaving firms intending to make PAI disclosures with little choice but to prepare imminently to collect data in advance of the final RTS. Although we do not expect the European Commission’s final text to shift dramatically from the draft RTS issued by the ESAs, without final RTS firms will need to refer to those drafts when collecting data items and assessing gaps, and make any necessary adjustments based on the Commission’s finalized RTS. 


Caitlin McErlane is a partner in Baker McKenzie’s Financial Services & Regulatory Group in the London office. Caitlin's practice focuses on advising a range of global financial institutions on complex and high value regulatory matters. She advises banks, major corporates, payment institutions and asset managers on navigating UK and EU financial services regulation. She has particular experience in advising clients on regulatory implementation projects, day-to-day compliance issues, and regulatory issues arising in the context of large-scale transactions. She also expertise in the areas of banking and wholesale financial markets regulation, in particular in the FX and fixed income space, alongside experience advising market infrastructure providers, including major international exchanges, trading platforms, clearing systems and payment services providers, on a variety of compliance issues. Caitlin is also a member of the Baker's ESG and sustainability taskforce, and advises a range of clients on the drafting and implementation of ESG policies and the implications of becoming a signatory to the UNPRI and the Stewardship Code. Caitlin is an authority on regulatory reforms in the sustainability space and sits on a number of trade association working groups. She has recently been interviewed by Climate Action on her work and is a frequent speaker on the subject.


Shaneil Shah is a senior associate in the Financial Services Regulatory Group in the London office.
Shaneil provides strategic regulatory advice to clients across the regulated sector, with a particular focus on the regulations applicable to fund managers, investment firms, market infrastructure, banks and insurers. He advises clients throughout their regulatory lifecycle, from pre-authorisation, through to business expansion and on responding to new regulatory developments. Shaneil also advises on contentious matters, including investigations and enforcement proceedings brought by financial regulators, internal regulatory investigations and financial services disputes.
Shaneil has particular experience advising clients on complex regulatory implementation projects, and has worked closely with a number of asset managers to launch novel products for both retail and wholesale investors. He also advises a wide range of clients on developments in ESG regulations, including the EU’s SFDR and Taxonomy Regulations and the UK’s ESG regime.
Shaneil has undertaken secondments to the London branch of a global investment bank (focusing on contentious matters) and to Baker McKenzie in Hong Kong.


Kimberly Everitt is Baker McKenzie's knowledge lawyer for Financial Services Regulation & Enforcement, covering the EMEA region, and brings over a decade of experience to the team in both knowledge and fee-earning roles. Prior to joining Baker McKenzie, Kim held roles specializing in contentious financial services regulation knowledge, and her fee-earning roles covered non-contentious regulation in the private equity and general financial services sectors.

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