Are you ready with your EET update by 1 January 2023?
Summary
The European ESG Template (EET) has been designed to encompass all the ESG data (SFDR product classification, ESG characteristics, sustainable investments target, PAIs inclusion…) included in the SFDR annexes and to ease the exchange of ESG information between the different financial market participants. Although the EET document is not required by the regulation, market pressure will lead to a “de facto” obligation to make this template available for selling the product.
Most of the financial players have already experienced the “light” version of the EET during this summer. It is time to work on the “full” version, to notably cover the pre-contractual information in force as from January 2023.
Background
With the sustainable finance regulations (SFDR, Delegated Acts IDD/Mifid..), financial advisers providing investment or insurance advice need to collect ESG information on the financial products they are promoting in order to ensure these products are suitable to the sustainable preferences of the investor.
The SFDR regulation has defined new sets of documents (i.e. pre-contractual annex and periodic annex, PAIs annex…) for products that promote ESG characteristics or have a sustainable investment objective.
The purpose of the EET that has been developed by the FinDatEx (Financial Data Exchange) working group, is to serve as the standardised, machine-readable template for the exchange of ESG data as defined by the different EU regulations (SFDR, Taxonomy, IDD, MiFID). It is of interest to insurers, distributors, fund of funds, but also other financial market participants, financial advisors, fund managers.
The first version has been released in April 2021. A new version 1.1, which has been released on 24 October 2022, is available on the FinDatEx website. An updated version of the EET is expected before year-end to encompass the latest developments in the SFDR annexes (i.e. inclusion of Gaz and Nuclear activity in the Taxonomy). The version 1.1 can be delivered as from 1 December 2022. Nevertheless, to consider implementation efforts already undertaken by the industry and giving it some time to rework what has been done, there is a transition period foreseen till 30 April 2023. Till then, version 1.0 and 1.1 can be used in parallel.
The scope is for all funds and structured products. For funds, the template should be provided on a share class level (ISIN level).
The template consists of about 600 fields, being mandatory, conditional, and optional. All fields are pre-defined. No free text is foreseen in the template. To avoid many updates, all definitions are linked to the different regulations.
The fields will change over time, meaning what is optional today might be mandatory in the future – by the way, that is one of the changes between version 1.0 and 1.1. Depending on the country of distribution, or the level of information needed, optional fields might be requested from the market. Mandatory and conditional fields have to be populated for Art 8 and Art 9 products. Other products have limited requirements at this stage but might still be requested to provide the EET.
The frequency of the reporting is linked to the information reported under the EET. Once the pre-contractual information will have been reported, it is expected that the EET will have to be updated on an annual basis to cover the periodic disclosures. This first update should occur around April 2023 with the publication of the periodic annexes for financial products having a financial year-end ending 31 December.
Next steps for asset and wealth managers
- Be ready to provide stakeholders with the report, otherwise you might face difficulties in selling your product;
- Do not underestimate the complexity in populating the report and the questions this might bring to your attention;
- In case you need help, reach out to us. We have built up the knowledge to support you in meeting your stakeholders’ expectations and releasing you from the “reporting pain”.
