Avoiding Common Pitfalls in SFDR Periodic Disclosures

With Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector (“SFDR”) now well embedded across the financial services industry, asset managers must once again turn their attention to finalising funds’ annual reports, including SFDR periodic disclosures.

While many firms have become familiar with pre-contractual disclosures and website updates, periodic disclosures bring their own complexities. They are retrospective in nature and require extensive quantitative data.

 SFDR periodic disclosure requirements

Under the amended Commission Delegated Regulation (EU) 2022/1288 (the “SFDR Delegated Regulation”), funds disclosing under Article 8 and 9 are required to report annually on the environmental or social characteristics they promote or on their sustainable investment objectives. These reports must follow the templates set out in Annex IV/III (for Article 8 disclosing products) and Annex V/IV (for Article 9 disclosing products) of the SFDR Delegated Regulation. 

 For both UCITS and AIFs, SFDR periodic disclosures must be included as an annex to the annual report, and so must meet the same deadlines as the annual reports themselves: 

• UCITS: 4 months after year end; and 

• AIFs: 6 months after year end. 

 The disclosures must reflect how the products performed against their stated ESG characteristics or sustainable objectives over the reporting period. This includes quantitative data on principal adverse impacts (PAIs), an assessment of alignment with the EU Taxonomy (where applicable) and explanations of how the “do no significant harm” (DNSH) principle has been met. 

Common Pitfalls in Practice

While the templates are highly structured, in practice they can give rise to a number of interpretative and operational challenges. These can often be traced back to data gaps, misinterpretation of the template instructions or misalignment with pre-contractual disclosures. Some common examples of pitfalls include: 

•  Inconsistent or outdated information across disclosures, where periodic disclosures are not aligned with the fund’s latest pre-contractual or website disclosures; 
•  Overly generic disclosures lacking sufficient detail to demonstrate compliance with SFDR requirements;
• Missing information on investments during the reporting period – especially for funds that launched mid-year or changed strategy; and
• Reliance on pre-contractual text as a starting point for the periodic report, without reflecting the fund’s actual ESG performance over the reporting period. 

Periodic disclosures are an important tool for investor transparency. As regulatory expectations evolve, particularly around data quality and Taxonomy reporting, funds must ensure their disclosures are accurate and reflect actual ESG performance. 

 How Zeidler can help 

We regularly support clients in reviewing their SFDR disclosures to ensure consistency and clarity. Our work spans: 

 Legal and regulatory reviews of periodic disclosures; 

• Cross-checking alignment with pre-contractual and website disclosures; and 

• Advising on interpretations of the templates and regulatory expectations 

 Contact our ESG Legal Team should you have any questions on the above or if you require further guidance.