This post contains some key information for the periodic reporting under the Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (the “SFDR”). The periodic report is a mandatory report for all article 8 and article 9 funds under the SFDR.

Background

An SFDR periodic report shall be made available for all alternative investment funds (“AIF” or “fund”) that are considered article 8 or article 9 funds under the SFDR. It should be published six months after the end of the financial year of the AIF.

The purpose of the SFDR periodic report is to disclose to investors the progress made on the sustainability characteristics/objectives set out in the pre-contractual disclosures of the same AIF.

This post aims to highlight some practical observations made from previous year’s SFDR reports and list some key points for consideration when drafting this year’s SFDR periodic report.

Key points for consideration

Start preparing for the SFDR periodic report in time

• The preparation of the contents of the SFDR periodic report is directly related to commitments in the pre-contractual disclosures and you must be able to report on the stated commitments. Permian has noted that many underestimate the time it takes to obtain underlying data from the portfolio companies and to analyze and aggregate the data before including it in the SFDR periodic report.

Timing of the report

• In Sweden, the auditors usually request that the SFDR periodic report is either included in the statutory accounts (Sw. årsredovisning) or that it is at least finalized no later than the statutory accounts if instead included in an investor report.
• In Norway, to date, it is not required to include the SFDR periodic report in the statutory accounts (which includes the report from the board of directors). The SFDR periodic report should be finalized no later than six months after the end of the accounting year and could be included in an investor report.

Using the template provided in the RTS

• The Commission Delegated Regulation (EU) 2022/1288 (the “RTS”) sets out the templates for the periodic reports in Annex IV and Annex V, for article 8 and 9 funds respectively. It is only permissible to make minor adjustments of these templates, namely: a) to adapt size and font type of characters and colours (article 2.1 of the RTS), and b) to remove sections that are not applicable to the fund in question, if those sections are accompanied by a red text instruction that explicitly limits the scope of application of the section, as clarified in a consolidated Q&A from the three European supervisory authorities EBA, ESMA, and EIOPA (together “ESA”).
• The SFDR templates are available in English on the ESMA website which can be accessed here. 

Alignment with pre-contractual disclosures

• The SFDR periodic report is based on the commitments and statements of the pre-contractual disclosures. We strongly encourage managers to make a side-by-side comparison with the pre-contractual- and website disclosures of the fund when preparing the SFDR periodic report, to ensure alignment and coherence between the disclosures and the SFDR periodic report.

Publish the SFDR periodic report on the manager’s/fund’s website. (We also note that some managers publish the SFDR periodic report alongside other fund specific SFDR disclosures on an investor portal.)

Consider regulatory updates since the SFDR periodic report published in 2024

• Please find a list below of more material updates.

Relevant regulatory updates during 2024

During 2024, there have been two important regulatory events impacting the SFDR periodic report:

Q&A on the SFDR

• On 25 July 2024, the ESAs published an updated consolidated Q&A on the SFDR (see link to the consolidated Q&A above), which has been analyzed in detail in a previous news update on our end: SFDR Update for Asset Managers - August 2024

CSSF sanction of fund manager for non-compliance with the SFDR

• On 15 October 2024, the Luxembourg FSA (the “CSSF”) fined an AIF manager for non-compliance with the SFDR. The AIF manager manages an AIF consisting of five separate sub-funds and the fine regarded all five sub-funds. For sub-fund number one, the investments made were misaligned with the ESG scores in the pre-contractual disclosures. For sub-funds two through to five, the CSSF noted that the means put in place by the AIF manager to measure its targets for sustainable development goals were inadequate. The AIF manager was subsequently fined EUR 56 500 for non-compliance across the five sub-funds.
• Permian Comment: The sanction shows the importance of ensuring that a fund reports in accordance with its pre-contractual disclosures. Managers must be able to measure to what extent investment objectives are met and report accordingly. For fund-of-funds underlying assets will be more difficult to control. Managers of fund-of-funds should therefore be careful in presenting its sustainability strategy. Finally, it is interesting to note that sanctions for ESG are beginning to materialize.

Key Contacts