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Sustainable FinanceDisclosure Regulation(SFDR)

1. Background3

2. Legal entity level disclosure – corporate level4

3. Product-level disclosure

5

3.1 Product pre-contractual disclosure

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3.2 Product website disclosure

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3.3 Product periodic reports

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How can we support you?

7Contacts8

1. BackgroundThe new Sustainable Finance Disclosure Regulation1 (SFDR) introduced
various disclosure-related requirements for financial market participants andfinancial advisors at entity, service and product level. It aims to provide moretransparency on sustainability within the financial markets in a standardised way,thus preventing greenwashing and ensuring comparability. The majority of thenew disclosure obligations will be applicable as of 10 March 2021.
In light of this, on 23 April 2020 the three European Supervisory Authorities
launched a joint public consultation on draft regulatory technical standards 2for ESG disclosures. The consultation document provides concrete proposals forthe content, methodologies and presentation of sustainability disclosures in
the fields of:• principal adverse impact disclosure• pre-contractual product disclosure• website product disclosure• product periodic disclosures.
The consultation is open until 1 September 2020 and the final texts are expected
in December 2020, leaving a very challenging implementation timeline(3 months).

Key facts
Topic

Sustainable financeImpact• Financial institutions (banks, investment firms, assetmanagers, insurers)• EU entities – direct impact• Non-EU entities – indirect impact through:– EU subsidiaries– provision of services in the EU– market pressure

StatusNumber of measures already applicable and legallybinding
Others still in proposal phaseTimelineMoving target through 2022/2023

Recommended
actions

Impact assessment
Implementation

1 Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related
disclosures in the financial services sector.
2 JC 2020 16, Joint Consultation Paper ESG Disclosure – Draft regulatory technical standards with regard to the content,
methodologies and presentation of disclosures pursuant to Article 2a, Article 4(6) and (7), Article 8(3), Article 9(5),Article 10(2) and Article 11(4) of Regulation (EU) 2019/2088.
Sustainable Finance Disclosure Regulation (SFDR) | 3

2. Legal entity level disclosure –corporate level
The SFDR introduces new obligations for the financial institutions in its scope related to disclosures on legal entity level.
It differentiates between financial market participants (providing SFDR products) and financial advisers (advising on
SFDR products).
The following corporate-level information must be disclosed on the website:

Financial market participants

Financial advisers

Sustainability
risk policy• Information about policies on the integrationof sustainability risks into the investmentdecision-making process• Information about policies on the integrationof sustainability risks into the investment
advice or insurance advice

Adversesustainability
impact• Consideration of principal adverse
impacts of investment decisions onsustainability factors• Statement on due diligence policies• Consideration of principal adverse impacts
on sustainability factors in the investment
advice or insurance advice• Comply or explain• Mandatory for large entities andlarge holdings• Comply or explain for all other entities
Remuneration
policies• Information on how remuneration policies are consistent with the integration ofsustainability risks

Of particular importance is the adverse sustainability impact.

Principal adverse impact on sustainability factors• negative, material or likely to be material effects on sustainability factors that are caused, compounded by or directly
linked to investment decisions and advice performed by the legal entity
The proposed Level II measures define a catalogue of mandatory and voluntary adverse sustainability indicatorswith corresponding metrics in relation to:• climate and the environment• social and employee, respect for human rights,
anti-corruption and anti-bribery matters.
The Regulation requires to understand:• scope,

The sustainability factors are pre-defined in atemplate and consist of:
32 mandatory indicators• severity,• probability of occurrence and• potentially irremediable characteron sustainability factors.

18 voluntary indicators

16 environmental
16 social
11 environmental
7 social

For large entities and parents of large groups, the disclosure of adverse sustainability impact is mandatory. These entities
need to start considering the principal adverse impact by 30 June 2021 at latest. The first mandatory reporting is requiredby 30 July 2022 for the reference period in 2021.

4 | Sustainable Finance Disclosure Regulation (SFDR)

3. Product-level disclosure
The SFDR imposes various new obligations for product disclosures in relation to sustainability. It includes requirements
not only for ESG-related products, but also for mainstream, or non-ESG-related, products.
To fulfill the new product disclosure obligations, financial entities have to classify the products they manufacture or advise
on into three categories:
Products promoting
environmental or social
characteristics

Mainstream products

Products with sustainable
investment objective

This affects the following documentation:• pre-contractual disclosure• periodic reporting• website product disclosure

3.1 Product pre-contractual disclosure
The SFDR imposes new requirements regarding pre-contractual disclosure. Certain obligations are included in the new
EU Taxonomy Regulation 3 .

Mainstream
products
Integration ofsustainability
risks

Products promoting
environmental orsocial characteristics

Products withsustainable
investment objective• The manner in which sustainability risks are integrated in the investment
decision/investment or insurance advice• Assessment of the likely impacts of sustainability risks on the financial
return• Where sustainability risk is deemed not to be relevant, explanation of thereasons for thisPrincipal
adverse impact• Where the FMP considers it: consideration of the product’s principal
adverse impacts on sustainability factors• Where the FMP does not consider it: statement on non-consideration +reasons for thisAdditionalsustainability
disclosuresn/a

Where to disclose• How thecharacteristics aremet• Consistency ofthe index with thecharacteristics• How the objective
is to be attained• Alignment of theindex with theobjective

FinancialMarketParticipant
Financial
AdvisorFinancialMarketParticipant

FinancialMarketParticipant

Existing pre-contractual documents(e.g. information to clients Art. 24 [4] MiFID II, UCITS prospectus, etc.)

According to the proposed regulatory technical standards, the information on additional sustainability disclosures has tobe provided using a mandatory template (not yet available) and integrated as an annex into the existing pre-contractualdocuments.
3 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation(EU) 2019/2088.
Sustainable Finance Disclosure Regulation (SFDR) | 5

3.2 Product website disclosure
Financial market participants are further required to disclose certain product information on their website for each SFDR
product supplementing their pre-contractual disclosure.
The following table provides an excerpt of the required information:

Products promoting
environmental or social characteristics

Mainstream
products• n/a

Products with sustainable
investment objective• Summary• Summary• Description of the characteristics• Description of the objective• Information on the methodologies forassessing, measuring and monitoring of
the characteristics• Information on the methodologies forassessing, measuring and monitoring of
the impact• Due diligence on the underlying assets• Due diligence on the underlying assets• Data sources, screening criteria for
the underlying assets and relevant
sustainability indicators• Data sources, screening criteria for
the underlying assets and relevant
sustainability indicators• Limitation to methodologies and data

• Limitation to methodologies and data

3.3 Product periodic reports
The SFDR imposes new requirements regarding periodic disclosure documentation. Again, certain obligations areincluded in the new EU Taxonomy Regulation.

Mainstream products

Products promoting
environmental or social
characteristics

Products with sustainable
investment objective

Principal
adverse impacts• Where the financial market participant considers it: information on principal adverse impacts
on sustainability factors

Additionalsustainability
disclosuresn/aAdditional green
taxonomy-related
information

Statement
The investments underlying
this financial product do
not take into account the EU
criteria for environmentally
sustainable economic
activitiesWhere to disclose• The extent to which theenvironmental or social
characteristics are met• The overall sustainabilityrelated impact• Requirements as for
products with sustainable
investment objective asapplicable• Taxonomy objective(s)to which the productcontributes• Additional statementthat the DNSH principle isapplied only to investments
in Taxonomy• A comparison between
the product impact and theimpacts of the designatedindex and of a broad
market index• % investments in
Taxonomy activities• % of enabling andtransitional activities

Existing periodic reporting documents(e.g. periodic report Art. 25 (6) MiFID II, UCITS annual report, etc.)

Similarly to the pre-contractual disclosures, the information on additional sustainability disclosures will have to beprovided using a mandatory template (not yet available) and integrated as an annex into the existing periodic reporting
documents.

6 | Sustainable Finance Disclosure Regulation (SFDR)How can we support you?
• SFDR scoping and impact analysis• Regulatory gap analysis• Interrelation with other regulatory frameworks• Guidance, workshops and SME support• Identification of required underlying data
• ESG data provider selection• Implementation

Sustainable Finance Disclosure Regulation (SFDR) | 7Contacts
For more information please contact our experts
Dr Antonios Koumbarakis
Head Strategic Regulatory andSustainability Services, Switzerland
Office: +41 58 792 45 23
Mobile: +41 79 267 84 89
antonios.koumbarakis@ch.pwc.com

Dr Guenther Dobrauz
Partner
Leader Legal FS Regulatory &Compliance Services, Switzerland
Office: +41 58 792 14 97
Mobile: +41 79 894 58 73
guenther.dobrauz@ch.pwc.com

Loric Szalai
Strategic Regulatory and SustainabilityServices, Switzerland
Office: +41 58 792 23 39Mobile: +41 79 820 65 14
loric.a.szalai@ch.pwc.com

Sofia Tsankova
Strategic Regulatory and Sustainability
Services, Switzerland
Office: +41 58 792 26 87
Mobile: +41 79 834 68 75
sofia.t.tsankova@ch.pwc.com

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