ESA Joint Committee · sfdr-63 Final

a) In situations where financial market participants delegate management, is the application of the definition of "sustainable investment" in Article 2, point (17) SFDR an exclusive prerogative of the

Regulation
SFDR
Answered
2024-07-25
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Joint Committee Q&As are published in consolidated PDF documents without explicit question/answer delimiters. Section boundaries below are identified automatically and may occasionally be imprecise.

Question

a) In situations where financial market participants delegate management, is the application of the definition of "sustainable investment" in Article 2, point (17) SFDR an exclusive prerogative of the delegating financial market participant? Or can the definition of "sustainable investment" used by the delegating financial market participant be different depending on the delegations granted for the financial products concerned? It seems widespread practice that most delegating financial market participants use the application provided by the delegate which can lead to situations where the same instrument can be considered as sustainable or not sustainable for a given financial market participant depending on the delegation. Depending on the answer provided, it would be useful to clarify who is responsible in case of non-compliance of this definition in SFDR. b) Where passively managed financial products disclosing under Articles 8 or 9 make sustainable investments, can they use the sustainable investment definition of the index provider? If they can, could it raise the risk that since the same asset could be both sustainable and not sustainable depending on if the product is a passively or an actively managed fund where the financial market participant reaches a different conclusion compared to the index provider?

Answer

a) Considering that delegation has no impact on the accountability of the delegator, the responsibility to ensure compliance of investments with the definition of sustainable investments in Article 2(17) SFDR remains with the financial market participant offering the financial product making those investments. If a financial product invests in underlying financial products with potentially different application of Article 2(17) SFDR, the delegating financial market participant must ensure that any investments considered sustainable investments conform to its own application. If the financial product makes investments in investee companies in a delegation arrangement that do not comply with the delegating financial market participant’s application of sustainable investments, then that investment is not a sustainable investment for the delegating financial market participant’s financial product. In line with Question V.22 above, the financial market participant providing the financial product must have a sustainable investment application of its own and the financial market participant is responsible for ensuring compliance of the investments with its sustainable investment application – irrespective of whether management is delegated or not. b) The financial market participant manufacturing the financial product is responsible for compliance of sustainable investments with the definition of sustainable investments in Article 2(17) SFDR. In situations where the financial product is disclosing under Article 9(3) and a PAB or CTB has been designated, please see also Q&A V.7 and V.9.
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This Q&A is published by ESA Joint Committee (EBA, ESMA, EIOPA) and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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