When the Central Bank of Ireland ("CBI") originally announced its SFDR fast track filing process in October 2022, it flagged that it would, in due course, conduct spot checks on the pre-contractual disclosures prepared for Article 8 and 9 funds.
The CBI have now started issuing spot check feedback. The CBI has noted in such correspondence (as it flagged when originally announcing the fast track process) that "Where queries arise in respect of applications, the Central Bank will engage with the selected applicants on a bilateral basis and may require revisions to the pre-contractual documents notwithstanding the noting / confirmation issued.".
A number of interesting points of focus have emerged within this feedback:
- In the context of Article 8 funds that are heavily reliant on exclusions, requests for additional disclosure on how these feed into the promotion of environmental and social characteristics within the fund strategy;
- Where there is high level reference to internal sustainability models / processes, requests for further disclosure providing detail of what these entail;
- In the context of exclusions being applied to certain issuers based on factors like "material" revenue, requests for quantitative parameters for these exclusions; and
- Sustainability disclosures in the main body of a fund supplement must be also be clearly addressed in the SFDR pre-contractual template.
While much of the above is intuitive and simply consistent with the general standard of presenting investors with disclosure which affords them sufficient detail to make an informed decision on the investment being put to them, it is nonetheless instructive to see some of the particular points the CBI have been looking at in the context of SFDR.
SFDR is of course fundamentally a disclosure regulation, which seeks to "enhance transparency and inform end investors" and so a focus on these aspects is to be expected and indeed welcomed in enhancing disclosure to investors across the sustainable value chain.
Recent ESMA communications further point to SFDR disclosure remaining a point of focus for regulators. The ESMA Progress Report of Greenwashing emphasised both that (i) the ESAs will take a very broad view as to greenwashing risk (misleading sustainability claims occurring and that these mislead investors in their decisions); and (ii) pre-contractual disclosure for fund products are a key channel for such misleading claims occurring.
In a similar vein, ESMA launched a Common Supervisory Action ("CSA") with National Competent Authorities on sustainability-related disclosures and the integration of sustainability risks last month. ESMA noted that "Ensuring greater convergence in the supervision of risks stemming from incorrect and misleading disclosures is central to the effort to foster transparency...the CSA will promote this goal by improving the comprehensibility of ESG disclosures by asset managers".
It is clear sustainable fund disclosure is, and will remain, a point of focus for the CBI, and managers should consider whether there is scope for disclosure enhancements across their sustainable fund ranges in light of these developments.
If you would like any further information or require any assistance on the above, please don’t hesitate to contact me or your usual Maples Group contact.