On 9 September 2022, the Swedish Financial Supervisory Authority (SFSA) published an analysis of pre—contractual disclosures made about article 9 funds under the Sustainable Finance Disclosure Regulation (SFDR). The main conclusion of the SFSA was that the information provided about such funds was unclear.

The analysis included 30 UCITS funds registered in Sweden that were categorized as article 9 funds. An article 9 fund under the SFDR is a fund that has sustainable investments as its objective.

In the analysis, the SFSA concluded that, in general, the funds’ pre-contractual disclosures were unclear regarding:

1. what is considered to be a sustainable investment;
2. the description of the environmental or social objectives to which the fund contributes;
3. information regarding how sustainability risks were taken into account in the investment decision-making process; and
4. information regarding the likely impacts of sustainability risks on returns.

On the first point, regarding sustainable investment, the SFSA states that there was a lack of clarity in the pre-contractual disclosures how the companies make the assessment that an underlying asset qualifies as a sustainable investment.

Permian comment: The lack of clarity is presumably related to the difficulties in interpreting the definition of sustainable investment in article 2.17 of the SFDR. Despite such unclarity, the managers will need to make their own assessment of what a sustainable investment is based on such general definition.

On the second point, the SFSA states that for some funds, the description of the environmental or social objective was unclear in the pre-contractual disclosures.

Permian comment: We recommend that a description of the environmental and/or social objective is included in the pre-contractual disclosures. We also note that the SFSA’s analysis includes a few examples of such objectives.

On the third point, the SFSA states that the pre-contractual disclosures often only included a confirmation that sustainability risks were taken into account in the investment decision-making process but without providing further details about how it was taken into account. In addition, the SFSA also noted that some pre-contractual disclosures included too much information, and detailed technical terms which could be difficult for consumers to interpret.

Permian comment: We recommend that the information regarding sustainability risks includes details about how such risks are taken into account in the investment decision-making process and not only that they are taken into account.

On the fourth point, regarding the likely impacts of sustainability risks on returns, the SFSA states that the description about how risks could impact returns was generally not sufficiently clear and that it was not specific for the fund in question.

Permian comment: Our recommendation is that asset managers conduct a proper ESG risk analysis for the fund in question and then disclose more detailed information in the pre-contractual disclosures regarding identified potential sustainability risks and potential impact on returns.

For the full SFSA analysis, please click here.

Contacts:

Anna Berntson Petas: anna.berntson@permian.se

Kristina Ekkeren: kristina.ekkeren@permian.no