SFDR also applies to merely registered AIFMs
Even though there were still good arguments in March of this year to doubt that the SFDR also applies to registered AIFMs, this is no longer the case. This is because the European Commission has now clarified in its decision of 6 July 2021 and the associated FAQ that registered AIFMs must also comply with the new disclosure requirements. So anyone who has not yet updated their website and fund documents should act quickly. The first step is always to make a strategic decision as to whether to qualify the funds as Art. 6, 8 or 9 SFDR funds.
Classification as Art. 6 SFDR or Art. 8 SFDR funds should be reviewed
In this respect, the above-mentioned FAQs have made it necessary, in particular for the private equity / venture capital funds which, according to their own assessment, have so far been classified as Art. 6 SFDR funds, to take another look at this classification. This is because, as requested by the European supervisory authorities, the European Commission has now issued guidance on, among other things, the distinction between Art. 6 SFDR and Art. 8 SFDR financial products. However, these are unfortunately not clear and leave some questions unanswered.
It still seems relatively certain that an advertisement in the fund documents with a membership in (UN) PRI leads to a qualification as an Art. 8 SFDR fund. In addition, according to the European Commission, it shall be sufficient for classification as an Art. 8 SFDR fund that (i) concrete ESG requirements are met by the fund and (ii) the claim is made or the impression is created that the investments implemented with the fund also take environmental and social characteristics into account. Especially in the case of funds that mention ESG aspects but do not make them a central point of the investment strategy, there is likely to be a conflict of objectives between compliance with legal requirements on the one hand and the avoidance of a false impression (greenwashing) on the other. In principle, this can only be resolved on an individual basis.
Consideration of adverse sustainability impacts of investment decisions only in the future
Many fund managers do not yet take into account adverse sustainability impacts of investment decisions according to Art. 4 SFDR, as they simply lack the data to publish the required mandatory disclosures. For even if the Regulatory Technical Standards (RTS) concretising the SFDR have still not been published, everyone believes that this will happen soon. And when looking at the table with disclosure obligations contained in Annex I to the RTS, fund managers or fund administrators are then generally still asking themselves how, for example, “Scope 1, 2 3” issues are determined in relation to portfolio companies. These and other questions must be clarified in the future. Otherwise, fund managers would have to continue with the unattractive marketing statement that adverse sustainability impacts of investment decisions are not (or cannot) be taken into account.
Further tasks for the coming months
Private equity funds have been particularly concerned since the spring with the ever-increasing reporting requirements of investors with regard to ESG data. In the process, both investors have approached fund initiators with their own ESG reporting templates and negotiated their annual (or even more frequent) filling by fund managers (mostly by way of side letters). On the other hand, some fund managers have also taken the initiative themselves and created their own ESG reporting templates, which they then make available in response to corresponding requests from investors. Difficulties are often caused by the still unclear scope of the ESG data that investors want to receive from the funds. The uncertainties regarding the scope of the ESG information that is ultimately actually required often results in the investors’ request to receive a blanket commitment from the fund management to simply provide the investor with all the ESG data requested by him in the future. The funds are naturally critical of this request, especially since they are not yet able to estimate the workload associated with the provision of such data.
In this context, it must be taken into account by all sides that the future RTS will require a different scope of data to be provided depending on the qualification of the fund. This concerns both the pre-contractual information and the annual reports, in which an Art. 8 SFDR or Art. 9 SFDR fund must in principle provide significantly more extensive information than an Art. 6 SFDR fund. In this context, however, it is at least helpful that it can be assumed that, according to a further letter from the European Commission dated 8 July 2021, the RTS will not apply as early as 1 January 2022, but only as of 1 July 2022. The time thus gained should be used in the coming months to prepare for the application of the RTS.
In addition to the topic “SFDR”, market participants will also have to deal with the Taxonomy Regulation ((EU) 2020/852), which will apply from 1 January 2022, and the additional disclosure obligations it contains. For Art. 8 and Art. 9 SFDR funds, this requires the disclosure of the environmental objective(s) within the meaning of the Taxonomy Regulation to which the investment in the fund contributes. Furthermore, the extent to which the fund invests in economic activities (i.e. the activities of the portfolio companies) that are environmentally sustainable within the meaning of the Taxonomy Regulation must be presented. In addition, all funds (including Art. 6 SFDR funds) must include a disclaimer in relation to the Taxonomy Regulation.
Even though a major hurdle was already cleared for fund managers in March this year with the implementation of the SFDR, it is now high time to deal both with the Taxonomy Regulation, which will apply from 1 January 2022, and (continue to) work towards the entry into force of the RTS on 1 July 2022.