Interview with Gabriel Webber Ziero, Head of Policy Outlook at ECOFACT AG by Irena Belcheva
The Sustainable Finance Disclosure Regulation (SFDR) is the cornerstone of a broader package of legislative tools of the European Commission’s Action Plan on Sustainable Finance. The articles from this regulation take effect in March, June and December 2021. A further set of requirements are planned to take effect in January, June and December 2022. The new rules should improve sustainability related disclosure in the financial sector. The aim is to trigger behavioural changes, to discourage greenwashing and to promote sustainable investments.
Why is SFDR important for businesses?
The SFDR requires financial institutions to understand and address risks related to sustainability factors. These risks can be those translating into negative financial return of investment products that financial institutions offer (sustainability risks) or adversely impacting societies and the environment (adverse sustainability impacts). It is important to point out, that even financial institutions which do not have a sustainable offering or angle will need to comply with the SFDR. Consequently, the financial sector is more than ever eager to understand the sustainability practices adopted by businesses they invest in. To feed this growing demand for sustainability information, data providers are creating, revising, and further enhancing their analysis and rating methodologies from a sustainability perspective. In addition, lawmakers are stepping up to make mandatory that companies report on the sustainability factors financial institutions need to consider – this becomes clear in the document introducing the EU Commission proposal for a Corporate Sustainability Reporting Directive. Therefore, it is fair to say that due to the SFDR, the way in which businesses manage sustainability factors has become a determining factor for financial institutions when deciding which entities to invest in.
Who should comply and what are the steps?
The SFDR is primarily target and applicable to financial institutions offering investment products and investment advice within the European Union. Entities outside the financial sector are therefore not impacted in the first instance. They will however feel certain changes in the market, for example in the posture adopted by asset managers and engagement service providers, which will potentially become more assertive in relation to sustainability factors. Thus, the first thing to keep in mind is that investors want to know about how companies address sustainability topics in the context of their core business and strategy. Therefore, businesses are required to assess their policy, governance, processes and practices in regard to sustainability issues – and if needed revise them in accordance with industry practices. In addition, businesses need to get ready to disclose what they are doing and what they are planning to do.
What is the link with Swiss legislation and Swiss businesses?
There are the immediate and most visible links with Switzerland. The first one is the Federal Council’s announcement that the Federal administration will be analysing during 2021 whether Swiss financial legislation needs to be revised in order to ensure compatibility with the new EU market access requirements that include the SFDR. Secondly, large Swiss companies will soon be mandated to disclose on sustainability issues as prescribed by the latest amendments in the Code of Obligations. Here it is important to pay attention to the fact that the Swiss regulation is based on the EU Non-Financial Reporting Directive, which was adopted in 2014, and is now going through a major revision process – the so-called Corporate Sustainability Reporting Directive. Last, but not least, the Federal Council has announced that it will work towards making mandatory TCFD-reporting for all sectors of the Swiss economy. This will push for more sustainability-related transparency and data in Switzerland aligning with a wider global trend.
ECOFACT works primarily for banks, insurers, institutional investors, and international standard-setters in helping them to understand regulatory developments pertaining to sustainable finance and corporate responsibility, build ESG frameworks, and offer due diligence and risk management solutions. Which implementation steps would you recommend to the FMP who are affected by the SFDR?
When it comes to implementing the SFDR, the first thing that financial institutions need to understand is that the SFDR does not exist within a regulatory vacuum neither independently from the processes and practices adopted by them. Thus, it is paramount to put the SFDR and other sustainable finance regulations, such as the EU Taxonomy Regulation, in context and identify which internal processes they impact. Thus, implementing the SFDR is at the end of the day more about revisions and updates than creating new policies and processes. From this moment on, financial institutions need to understand that to comply with the SFDR they need to observe and implement sustainability processes in line with what the regulator expects and that this might lead to significant changes on how things are done. Consequently, it is important to have different units across your institution that might be impacted by the SFDR on board from early on.
About ECOFACT and Gabriel Webber Ziero
ECOFACT has been helping clients to understand environmental and human rights risks in their business relationships with companies, since 1998. We conduct market-leading research and provide advice to support our clients in addressing strategic questions such as:
What do regulators and standard-setters expect of you?
Which ESG issues require your attention and why?
How are your peers approaching these challenges?
Our input allows clients to efficiently develop their sustainable finance and/or corporate responsibility strategies—and operate the corresponding management systems.
Gabriel Webber Ziero is an ECOFACT senior consultant specialized in strategic regulatory compliance in the areas of sustainable finance and corporate responsibility, as well as Head of ECOFACT Policy Outlook. In this context, Gabriel supports financial institutions to understand and act on regulatory requirements as well as contributes to the work of organizations like the OECD, Swiss Bankers Association, and Swiss Sustainable Finance. Gabriel is licensed to practice as an attorney-at-law in Brazil and holds a doctorate in International and European Law from Roma Tre University (Italy), as well as an LL.M. from Leiden University (Netherlands). He is a lecturer at the Certificate of Advanced Studies in Sustainable Finance program of the University of Zurich.