6 min read

What are SFDR Periodic Disclosures and How Do They Impact Your Investment Funds?


  • author-avatar
    Helen Patenall
  • author-avatar
    Aoife Busher

We turn to Associate Director Aoife Busher for valuable insights on the crucial steps fund managers need to take to meet the requirements of SFDR Periodic Disclosures.

Hi Aoife, what are SFDR Periodic Disclosures and how do they impact funds?

The Sustainable Finance Disclosure Regulation (SFDR) Periodic Disclosures should be no surprise to funds positioned as Article 8 or Article 9 under the regulation. The periodic disclosure requirement is a cornerstone of SFDR, and all Article 8 and Article 9 funds are obligated to comply.

The periodic disclosure obligations are designed to enhance transparency and provide investors with valuable information about the sustainability-related commitments and performance of their invested funds.

It’s important to note that SFDR is not a once-time disclosure but, rather, a periodic disclosure requirement that entails ongoing annual reporting obligations for Article 8 and Article 9 funds.

How do Periodic Disclosures impact Article 9 funds?

Article 9 funds have sustainable investments as an objective and are therefore obligated to provide standard disclosures to investors.

All Article 9 funds must complete an Annex III, Pre-Contractual Disclosure. This pre-contractual disclosure is used to formalise the sustainability-related commitments (i.e., the sustainable investment objective) in your fund’s Offering Memorandum (OM) or Private Placement Memorandum (PPM) to investors.

The pre-contractual disclosure sets the commitments of an Article 9 fund. Thereafter, such funds must annually provide detailed information on their sustainable investment objectives, how they were implemented, and the impacts achieved in an annual Annex V, Periodic Disclosure. When completing this standard template for your fund, you must provide an update on its progress and disclose any committed metrics and indicators on an annual basis.

How do Periodic Disclosures impact Article 8 funds?

Article 8 funds promote environmental and/or social characteristics and are also obligated to provide standard disclosures to investors.

Article 8 funds follow the same process as Article 9 funds. They must prepare a pre-contract disclosure and continue to provide annual periodic disclosures to investors.

The difference lies in the standard templates used to formalise the sustainability-related commitments (i.e., the characteristics), and the provision of annual updates.

All Article 8 funds must confirm their sustainability-related commitments using the Annex II, Pre-Contractual Disclosure template. In addition, they must provide annual transparency updates on the promotion of environmental and/social characteristics using the Annex IV, Periodic Disclosure template.

How do Periodic Disclosures impact Article 6 funds?

Article 6 funds do not have defined sustainability-related commitments, they do not promote environmental and/or social characteristics, and they do not have sustainable investments as an objective.

As a result, Article 6 funds have pre-contractual disclosure requirements only. Such funds are required to document in the fund OM or PPM how the manager considers sustainability risks in their investment decisions and shares the expected impacts of these risks on the returns of the fund.

However, if you have an Article 6 fund that’s likely to reposition to Article 8, it pays to be aware of future reporting requirements.

When must fund managers complete these Annex IV or V Periodic Disclosure Templates?

You must complete the periodic disclosures annually. The relevant Annex V or IV template must be completed and attached to your fund’s Annual Financial Report. However, the reference period covered by the Annex and the timeline of the disclosure directly relate to your fund’s individual financial reporting reference period and your reporting publication timeframe.

It’s therefore crucial to have the correct reporting and data collection processes in place to meet your respective reporting deadline. For example, if your fund was positioned as Article 8 at the start of your 2023 reference period, your Annex IV disclosure must be completed and attached to your Annual Financial Report when it’s published in 2024. It’s sooner than you might realise!

How is the Principal Adverse Impact Disclosure connected to Periodic Disclosures?

If your Article 8 or Article 9 fund opts to consider Principal Adverse Impacts (PAI) on sustainability factors, the committed indicators must be disclosed in the relevant annual periodic disclosure (Annex IV or V). The provision of PAI information in fund-level periodic disclosure creates access to indicator information for the investors, who, as financial market participants, take and roll up the indicators into their own Annex I PAI statements.

Annually, financial market participants must publish their Annex I PAI statement by 30 June, so if your fund’s financial reporting publication falls after that date, your investors may request separate PAI disclosures.

How hard can it be to submit Annex IV or V Periodic Disclosures?

The periodic disclosures for Article 8 and Article 9 funds must be completed in accordance with guidance set out in the Regulatory Technical Standard (RTS) (Chapter V, Section II).

The difficulty in preparing the Annex IV or V is directly related to the contents of the pre-contract disclosure template Annex II or III for your fund. If your sustainability-related commitments were not established with the fund’s investment objectives and strategy in mind, you may struggle to prepare meaningful updates.

It’s worth asking: Are my pre-contractual sustainability-related commitments well-defined and measurable?

If your answer is yes, then the next question to ask is: Do we have the correct management processes and information collection methods in place to meet our reporting deadline?

If not, don’t worry, our dedicated Sustainable Finance team is here to lighten your load and ensure everything is in place to meet your disclosure requirements. We’re here to support your journey towards greater transparency and sustainability in all your real asset investments.

How does EVORA’s ESG data management platform support regulatory disclosures?

At EVORA, we leverage our SIERA data management platform to identify and store a wide range of data points, enabling us to report to several regulatory disclosures at speed. These include the SFDR, TCFD, and EU Taxonomy.

For example, SIERA’s data model streamlines data insight on asset values (GAV and rental value), Energy Performance Certificates (EPCs), carbon emissions across scopes 1-3, energy intensity, and waste data to simplify ESG regulatory reporting. The platform’s API also gathers data for reporting through customisable exports directly from the database.

In 2024, we’ll be taking this one step further, with the launch of a purpose-built SFDR Module for SIERA.

Get in touch with our Sustainable Finance team today to prepare your Annex IV or V Periodic Disclosure ahead of time.