On 26 July 2021, the European Commission published its answers to a number of questions raised by the European Supervisory Authorities (ESMA – EBA – EIOPA, together the “ESAs”) regarding the application of the Sustainable Finance Disclosure Regulation (“SFDR”). One of the questions concerned the application of the SFDR to registered alternative investment fund managers (also called “small-size” or “de minimis” AIFMs).
The SFDR entered into force on 10 March 2021. It imposes a number of transparency and disclosure requirements on certain financial market participants. For example, the SFDR requires disclosure of whether sustainability risks and principal adverse impacts on sustainability are taken into account, both at the level of the entity and at the level of the financial products that this entity offers. Disclosures are particularly burdensome for entities that offer financial instruments promoting Environmental, Social, & Governance (“ESG”) characteristics. Importantly, disclosures are also required where the financial market participant, or the products it offers, don’t pursue ESG characteristics.
While the scope of the SFDR clearly includes authorised or “full-size” AIFMs, the application to registered or “small-size” AIFMs was less clear. This was mainly because the disclosures under the SFDR should be made in reports that don’t need to be filed by small-size AIFMs.
However, the European Commission now clarified that the SFDR also applies to small-size AIFMs, both as regards entity-level disclosures and product-level disclosures. These disclosures should be applied ‘by analogy’, meaning that they will need to be included in the reports that are filed by small-size AIFMs under national law.
All small-size AIFMs are affected by this development, whether they (or the funds they manage) pursue ESG objectives or not. The SFDR requirements will also apply to existing funds, or funds that are no longer in a marketing phase. In particular, small size AIFMs that manage funds with an ESG focus will need to ensure that they comply with the strengthened disclosure requirements of the SFDR.
Yannis Schlüter, Senior Associate in the Investment Funds Legal team, has assisted in the preparation of this newsflash.