EU ESG regulations: What lies ahead for asset managers?
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EU ESG regulations: What lies ahead for asset managers?

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Diana Ribeiro Duarte, Pedro Capitão Barbosa and Manuel Bragança Santos of Morais Leitão discuss the mandatory ESG disclosure obligations for asset managers

Institutional investors are increasingly advocating for asset managers to pursue green investments and sustainable solutions. 

Undoubtedly, there is a growing recognition of the impact that environmental, sustainability and governance (ESG) factors have on the valuation and financial metrics of investee companies, as well as the need for the latter to operate ethically; political hot topics like climate change and human rights protection have therefore increasingly become staples at upper echelons’ meetings of institutional investors.

The EU is at the forefront of this movement, heavily pushing for harmonised solutions in order to tackle ESG matters.

Among these solutions, Regulation (EU) 2019/2088 of the European Parliament and of the Council of November 27 2019, also known as the Sustainable Finance Disclosure Regulation (SFDR), as amended by Regulation (EU) 2020/852 of the European Parliament and of the Council of June 18 2020 (Taxonomy Regulation), are both current and next major milestones in the field of ESG, especially with respect to the introduction of new sustainability-related disclosure requirements.

The sensitive nature and technical detail of the obligations that the SFDR and the Taxonomy Regulation demand is evidenced by the phased application and development of its various obligations. This allows for the smooth implementation of the various pieces of legislation, but they make the latter more cumbersome to interpret (especially by regulators and the entities targeted by it).

This article clarifies the timeline for the application of the most relevant obligations established in the SFDR and Taxonomy Regulation, as well as the respective level 2 regulations.

SFDR and Taxonomy Regulation obligations

The SFDR was adopted on November 27 2019, and it imposes mandatory ESG disclosure obligations for asset managers and other financial market participants on a staggered basis. 

Effective as of March 10 2021 (without prejudice to the particular provisions regarding the entry into force of certain obligations, which are mentioned below), the SFDR encompasses three pillars of disclosure requirements of financial products’ performance on ESG matters for asset managers:

a) The first pillar embodies sustainability risk and according to the SFDR, asset managers are required (from March 10 2021, onwards) (i) to assess the potential ESG factors which could negatively impact the returns of the funds; and (ii) to disclose the outcome of that assessment to investors both in the funds’ prospectus documents and on the asset manager’s website.

b) The second pillar is related to the sustainability impact assessments at entity and financial product level, as follows:

  • On one hand, entity level disclosures of the SFDR establish that larger asset managers must, starting from June 30 2021, on a comply or explain basis, either implement a due diligence policy with respect to the Principle Adverse Sustainability Impacts (PASI) of its investment decisions and sustainability factors at an entity and product level or explain the reasons as to why such adverse impacts are not considered. In any event, such disclosures must be made on the asset manager’s website.

  • Smaller asset managers are free to continue to disclose their adverse sustainability impacts on a comply or explain basis according to the SFDR (the relevant commencement date being March 10 2021).

  • On the other hand, financial product level disclosures with respect to PASI will come into force by December 30 2022.

Sustainability impact obligations shall further be subject to the enhanced disclosure requirements of SFDR level 2 regulations, which timelines for entering into force shall be explained below.

c) The third pillar encompasses sustainable products. For asset managers, SFDR mandates disclosures (including those in periodic reports) related to funds that either (i) are marketed as having an environmental or social element to their investment strategy, as per Article 8 of the SFDR, (commonly known as ‘light green funds’) or (ii) specifically target sustainable investment objectives, as per Article 9 of the SFDR, (commonly known as ‘dark green funds’). Starting from March 10 2021 these light green funds and dark green funds are subject to general pre-contractual disclosures and will furthermore be subject to the specific disclosure requirements to be approved under the SFDR level 2 regulations.

Upcoming relevant SFDR level 2 regulations: dates and obligations

Initially scheduled to enter into force on January 1 2022, delayed once to July 1 2022, and then again to January 1 2023, SFDR level 2 regulations expand on the qualitative and quantitative assessments and disclosures of adverse sustainability impacts under SFDR. Such level 2 regulations are to be based on the adopted European Supervisory Authorities (ESA) regulatory technical standards (RTS). 

In very general terms, the RTS:

  • (On sustainability impacts) specify that asset managers will be required to comply with the new PASI disclosure requirements on sustainability matters by June 30 2023, meaning that the first reference period for such disclosures under the RTS will range from January 1 2022 to December 31 2022; and

  • (On sustainable products) subject Light Green Funds and Dark Green Funds to additional, more thorough, disclosures in accordance with the taxonomy alignment of their portfolios and mandatory disclosure templates (starting also from January 1 2023).

The ESG regulatory landscape has proven to be very intricate, and it is evolving at lightspeed with new introductions and amendments to existing legislation. Asset managers must bear in mind the current disclosure requirements that they are subject to and try and keep track of the next developments regarding ESG mandatory disclosures.


Diana Ribeiro Duarte

Partner, Morais Leitão



Pedro Capitão Barbosa

Principal associate, Morais Leitão




Manuel Bragança Santos

Trainee, Morais Leitão














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