ESG and Sustainable Finance: New EU Regulation

February 8, 2021

SFDR

The new Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial services sector (“SFDR”) will go into effect on March 10, 2021. The regulation requires “financial market participants” and “financial advisers” to comply with rules on transparency with regard to sustainability risks and the consideration of adverse sustainability impacts and the provision of sustainability-related information.

Investment fund managers and alternative investment fund managers will be required to include certain pre-contractual disclosures on ESG (“product level disclosures“), along with detailed public disclosures to be uploaded onto their websites (“entity level disclosures“). There are obligations on entity level, such as update of ADEPA’s policies including sustainability risks and factors, and on the product level, which are in particular:

  • Financial market participants shall include descriptions of the following in pre‐contractual disclosures: (a) the manner in which sustainability risks are integrated into the investment decisions; and (b) the results of the assessment of the likely impacts of sustainability risks on the returns of the financial products which is to be made available.
  • Where financial market participants deem sustainability risks not to be relevant, the descriptions shall include a clear and concise explanation of the reasons therefor.
  • Where a financial product promotes, environmental or social characteristics, or a combination of those characteristics, or has sustainable investment as its objective, or has a reduction in carbon emissions as its objective the Pre-contractual information must contain detailed information on how those characteristics are met, the ESG characteristics or objectives, methodologies and if an index has been designated as a reference benchmark, information on whether and how this index is consistent with those characteristics.
  • The product disclosure requirements must be integrated into existing sectoral disclosure formats in a “accurate, fair, clear, not misleading, simple and concise” way and filed to CSSF.
  • Financial market participants must publish the information for each financial product on their websites referred to a description of the environmental or social characteristics or the sustainable investment objective; information on the methodologies, measure and monitor the ESG or the impact of the sustainable investments, including data sources, screening criteria for the underlying assets and the relevant sustainability indicators used or the overall sustainable impact of the financial product.

In order to comply with SFDR, ADEPA can submit an updated prospectus/issuing document including all the requested disclosures by 28 February 2021 via a fast track procedure implemented by the CSSF.

ADEPA is working on the prospectus updates and information to be disclosed so that all are SFDR compliant by March 10, 2021. Moreover, we will be fully compliant with the entity level disclosures before the regulatory deadline.

ADEPA & ESG

There has been a shift towards sustainability in finance, with factors as climate change and other socioeconomic risks moving to the forefront:

  • The Sustainable Finance Disclosure Regulation (SFDR) is the first part of upcoming new ESG regulations.
  • We identify an increasing investors’ appetite for ESG products.
  • Luxembourg government announced a tax incentive to encourage ESG and compensate the additional costs to comply with the new regulations. The subscription tax rate can decrease to between 0.01% and 0.04% depending on the total net assets invested in environmentally sustainable assets.

ADEPA is committed to the integration of environmental, social and corporate governance (ESG) considerations into the investment management processes as part of our corporate social responsibility and because we believe these factors to have an impact on financial performance.

ADEPA is member of the Luxembourg Finance Labelling Agency (“LuxFLAG”), an independent and international non-profit association created to support sustainable finance.

For further information or questions, please do not hesitate to contact us through your allocated Client Leader.