SFDR (I said there will be acronyms) is the Sustainable Finance Disclosure Regulations and is an EU based regulation on sustainability related disclosures. RTS stands for Regulatory Technical Standards, these have recently been published on how to capture major financial services companies such as banks, funds, asset managers, etc… and are coming into effect this month (March!). Full implementation will be in January 2022. There are already issues on the reliability of ESG data & the small number of data providers. ESMA has also seemingly indicated a lack of transparency…and this raises the issue of ‘Greenwashing’. Greenwashing is when incorrect information, sometimes disinformation, is issued by a company so as to present an environmentally responsible public image.


In the UK, the approach to SFDR has already diverged from the EU. However, UK firms will probably move towards joining due to customer pressures…but there is NO implementation in 2021 over here. Instead, the focus will be on TCFD Disclosures (Task force on Climate-related Financial Disclosures), an entity set up by the Financial Stability Board. It has 4 core elements and 11 recommended disclosures. In 2021 this will apply to pension funds over GBP 5 Billion, premium listed companies, banks, etc… In 2022 it will extend to UK regulated companies and in 2023 to other companies. Key elements to note are… 1. Governance – Board oversight, management roles, committees on process, strategy & risks.


2. Strategy – Climate risks & opportunities over short/medium/long term, business strategy & resilience


3. Risk Management – Identify, manage, how it is integrated in to an organisation.


4. Practical Considerations – Disclose metrics, scope, GHG (Greenhouse Gases), Targets, KPI (Key Performance Indicators).


The EU has also reviewed the NFRD (Non-Financial Reporting Directive) to move to an EU wide ESG reporting standard. Points to note on this are a flexibility disclosure and criticism that companies place too much emphasis on short term quarter- by-quarter performance instead of long term sustainably strengthened financial foundations. IFRS (International Financial Reporting Standards Foundation) has issued a consultative paper on this subject. Their suggestion has been along the lines of creating ‘Sustainability Boards’. However, they note the need for a ‘standard setter’ to get this going. Many nations have IFRS standards written into law, yet this new higher level of information may not be legally binding…but it may gain momentum.


ENGAGE WITH YOUR TRADE BODIES…AND YOUR PEERS! THEY WILL DOUBTLESS BE HAVING THE SAME ISSUES AS YOU.


There is also SASB (Sustainable Accounting Standards Board) under which some companies have signed up to. They set standards in environment, social capital, human capital, business model & innovation plus finally leadership & governance. Influential companies such as BlackRock, AXA and Fidelity have signed up here.


This has been a short whirlwind tour of what I’ve noted on ESG. So, can we compare the EU with the UK…in other words, the EU’s SFDR compared to the work of the FCA and the UK Treasury. First off, there are already concerns about regulatory competition in this. The UK is seen as more competitive and possibly less stringent than the EU. However, the UK is seen as striving in this area to be above the EU and also a Global leader, so it is unsurprising that the two may diverge. Additionally, there are some special issues in this time of COVID such as working from home. Companies still have offices to run with heating and lighting. The impact from this on climate is still being appraised.


So how can a company keep track, especially those with ACD (Authorised Corporate Director) or an Authorised Person under the FCA? Well, here are a few useful suggestions I’ve seen! a. Engage with your trade bodies…and your peers! They will doubtless be having the same issues as you.


b. Do not be left behind…you really don’t want that!


c. Document ALL workings.


d. Make a Disclosure that can be audited…and ensure your auditors can do it.


e. Set an ESG Timeline.


Two final acronyms that I didn’t have a chance to fit in elsewhere…but are important. GRI – the Global Reporting Initiative, this has published ESG standards since 1997. ISO 26000, an ISO Standard that offers guidelines for ESG issues…but is not certifiable like other ISO Standards.


Eddie Tofpik E: eddie.tofpik@admisi.com T: +44(0) 20 7716 8201


11 | ADMISI - The Ghost In The Machine | Q1 Edition 2021


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