Version 1 of the European ESG Template (EET) was released by The FinDatEx group on 14th March 2022. It contains the official 620 field data-exchange template for ESG data, following the definitions from applicable EU regulations (eg. SFDR, Taxonomy Regulation, IDD, MiFID).
As firms are getting to grips with the data, as well as the product information and the requirements needed for each field, we will look at the key EET dates between now and 1st January 2023, when the SFDR pre-contractual and periodic reporting goes live.
1st June 2022
A reduced version of the EET template (EET-Light), will be used from 1 June 2022. The template includes the “sustainability preferences” fields in order to meet the August 2022 deadline for the MiFID and IDD obligations for distributors and insurers.
2nd August 2022
As referenced above, the MiFID II and IDD delegated requirements come into effect in the EU on 2nd August 2022.
The requirements have been laid out to, in theory, ensure the consideration of sustainability risk when it comes to investment decisions as well as the consideration of sustainability factors in governance and organization, product development, risk management and suitability. Distributors and financial advisers must now incorporate sustainability preferences in the overall client suitability assessment.
While this is something many already address, from August it will be mandatory.
By October 2022, firms should start providing the full EET ahead of the SFDR RTS reference period (end date 31 December 2022).
1 January 2023
SFDR and Taxonomy Regulation-driven reporting obligations go live.
Getting to grips with the requirements
There are some key areas for asset managers that will need to be addressed. These will mainly regard client relationships and enhanced understanding of products and how they are sold.
Below we have set out some steps that we believe will help to both provide clarity to clients and assist the internal team’s understanding of what is required.
- Set out a clear plan for your clients for today, tomorrow and the future.
- Clarified ESG strategy both at a wider firm and product level.
- Understand the products that align to sustainable investment targets.
Before firms begin gathering and populating data it is important that:
- There is a comprehensive understanding of all the data requirements needed to be able to appropriately support mandated compliance and reporting requirements.
- A robust system has been established whereby it is possible to source all the relevant information needed to satisfy requirements
- A framework is put in place that safeguards the accuracy and integrity of the information that is being used both internally, and passed onto distributors and insurers
The extensive nature of the EET will require asset managers to think about how they ensure that data is captured accurately.
Taking these steps will make fulfilling the necessary requirements a smoother process.
Once firms have a data set that is accurate, they should aim to:
- Test their EET work with internal teams and, if needed, external experts to resolve any data challenges that have been encountered along the way
- Engage with insurance and distributor clients to obtain feedback
- Most importantly, asset managers must ensure this entire process is allocated the necessary time and attention it warrants… and a little more if possible!
The more focus that is paid to ensuring firms effectuate a streamlined process to move through the stages of preparing, validating and implementing EET requirements, the less likely any major roadblocks will be.