Sustainable Finance Disclosure Regulations

Wed Jan 20 2021

The Sustainable Finance Disclosure Regulation (the “SFDR”) will come into effect on the 10th of March 2021. The SFDR was introduced by the European Commission alongside (the “Taxonomy Regulation”) and (the “Low Carbon and Positive Impacts Benchmarks Regulation”) as part of a package of legislative measures arising from the European Commission’s Action Plan on Sustainable Finance.

The SFDR sets out harmonised rules on transparency and aims to include environmental, social and governance (ESG) “sustainability” considerations and risks in the decision- making process of investors and asset managers in a consistent manner across the EU financial services sector.  A sustainable investment product is where a product is sold as promoting environmental or social characteristics.  It is envisaged that greater transparency and sustainability-related information will enable investors to compare financial products and to make informed investment decisions about ESG products.

The scope of the SFDR is broad, covering a wide range of financial products and financial market participants.  It applies to “financial market participants” (FMPs) across all sectors – fund managers, pension providers, insurance-based investment product providers, MiFID investment firms and credit institutions. The Regulations also applies to “financial advisers”, including an insurance intermediary which provides insurance advice with regard to Investment Based Insurance Products (IBIPs).

The SFDR introduces additional disclosure obligations for manufacturers of financial products and financial advisers toward end-investors. The Regulations will require impacted firms to integrate sustainability into their investment processes and to consider the adverse impacts of their investments on sustainability factors.

Financial market participants (“FMPs”) and financial advisers have similar but different obligations under the SFDR. The key elements relating to financial advisers are set out below:


Financial Advisers will be required to publish information about their policies on the integration of sustainability risks in their investment advice or insurance advice and whether, taking account of their activities and financial products, they consider in their investment advice or insurance advice the principal adverse impacts on sustainability factors; or the reasons why they do not consider such adverse impacts (and whether they intend to do so at a future date).   They will also be required to outline how remuneration policies are consistent with the integration of sustainability risks.


Financial Advisors will be required to update pre-contractual documents in order to disclose the manner in which sustainability risks are integrated into their investment or insurance advice and the results of the assessment of the likely impacts of sustainability risks on the financial product.


Financial advisers must ensure that any information published in relation to sustainability risks and remuneration policies is kept up to date and publish amendments clearly on their websites.


Article 17 (1) of the SDFR exempts insurance intermediaries, which provide advice on IBIPs, and investment firms, which provide investment advice, provided that they employ fewer than three people. Article 17 (2) provides Member States with a discretion to apply the Regulation to these entities.   Although such advisers may not be required to provide information in accordance with the SFDR, they would be required to consider and factor in sustainability risks in their advisory processes.

The Department of Finance are holding a consultation on this discretion with the closing date for submissions the 29th of January.  In the Brokers Ireland submission, we advocate for the exercise of this exemption on the basis that the cost of implementing these requirements will fall disproportionately harder on small firms who are already coming to come to terms with significant changing regulatory and legislative requirements over the past 2 years.   It was noted that if this exemption is applied, although such advisers are not required to provide information in accordance with the SFDR, they will still be required to consider and factor in sustainability risks in their advisory processes.  This means that there will be no advisory gap between consumers dealing with a firm of 3 or less employees rather than a larger firm.   Brokers Ireland will inform members of the outcome of this consultation process as soon as it is published and provide further guidance for members in relation to the requirements.

Brokers Ireland has also liaised with Product Providers in relation to the regulations.   They have advised that they are currently working on updating relevant documentation such as Product brochures/Fund fact sheets and will be updating their websites with relevant disclosures.  Some Product Providers have indicated that they will be running webinars on the subject towards the end of February – Brokers Ireland will update members when details for these webinars are available.

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