The industry-led European Working Group (now FinDatEx) has done fantastic work over several years to develop templates that the fund and structured product industries across Europe have bought into so those who produce regulatory data can disseminate it to those who need to disclose it.
Templates have been delivered for Solvency II, MiFID II – costs & charges, target market and feedback from distributors – and PRIIPs, and the MiFID template (EMT V3.1) has recently been updated to include recognition of the rise of ESG and the classification of funds under the Sustainable Finance Disclosure Regulation (SFDR).
FinDatEx has now started work on an ambitious and challenging project, the European ESG Template, or EET, with a target date of 1 January 2022; that is when the Regulatory Technical Standards (RTS) for the SFDR start to take effect across the EEA. Many UK-based groups are also caught, as they have operations in the EEA or have set up funds in Europe that mirror those in their UK range to cater for Europe-based investors post-Brexit.
While the reporting principles of the SFDR came into effect on 10 March this year, the detailed requirements of the RTS begin to take effect from January 2022.
Providers need to publish a statement of the “principal adverse sustainability impacts” of their investee companies on their website, using the templates in the draft RTS. These include a wide range of mandatory indicators on environmental issues such as greenhouse gas emissions, fossil fuel and non-renewable energy use and hazardous waste; and social and employee issues including the gender pay gap and exposure to controversial weapons.
Additional environmental indicators include investments in companies emitting ozone depleting substances, chemical production or involved in deforestation; and further social indicators such as lacking policies on human trafficking, child labour or discrimination. Where the EET comes in is that funds that invest in other funds will need all of the detailed information disclosed by the underlying funds before they can produce their own reports.
But more than that, financial advisers will also need to publish their own adverse sustainability impacts statement, explaining, if applicable, which factors from the providers’ statements – and in what order – they take into account when assessing suitable funds.
Advisers will also want more information than is on the European MiFID Template (EMT) when they ask their clients whether they wish to incorporate sustainability in their investments. With clients likely to have a whole range of different priorities they want to focus on, the details in the EET will be a way of seeing how well funds are doing against their criteria.
Having produced an internal data dictionary, listing every relevant item of data in the regulations, FinDatEx has now started to distil all of that into what needs to be disseminated by way of the EET and is putting a lot of work into getting it ready by the end of the year.
There is a huge amount of data to be gathered on underlying investee companies and I doubt anyone realistically expects to have a majority of the data in the first couple of years, at least. But there is no excuse for not trying to report as much as possible, so the EET will be invaluable for getting whatever data is out to those who will need it.
FE fundinfo's ESG specialists work closely with our development and data teams to prepare our Publication, Dissemination and Feed Services to allow a smooth integration.