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Regulatory Technical StandardsLesson 1 of 57 min readRTS 2022/1288 Art. 1-12

Overview of the RTS Framework (2022/1288)

Commission Delegated Regulation (EU) 2022/1288, commonly known as the SFDR Regulatory Technical Standards (RTS), is the Level 2 act that gives detailed technical content to the high-level obligations established by SFDR (Level 1). It is a lengthy and technically demanding instrument: the original text published in the Official Journal on 25 July 2022 runs to several hundred pages, with the majority comprising the standardised disclosure annexes.

In plain English: if SFDR is the law that says "you must disclose sustainability information," the RTS is the rulebook that says "here is exactly what to put in each section, in what format, and calculated how." Without the RTS, firms could each interpret SFDR differently. The RTS creates a standardised, comparable system.

Understanding the RTS's architecture is essential for navigating compliance.

Legal Status and Adoption

The RTS was adopted by the European Commission on 6 April 2022 under the empowerments in SFDR Articles 2a(3), 4(6), 4(7), 8(3), 8(4), 9(5), 9(6), 10(2), 11(4), and 11(5). These empowerments authorised the Commission to adopt delegated acts specifying the content, methodologies, and presentation of various SFDR disclosures.

The RTS was prepared by the three ESAs (ESMA, EBA, EIOPA) jointly through the Joint Committee of the European Supervisory Authorities and submitted to the Commission. The Commission adopted the ESA draft with modifications.

The corrigendum to the RTS (published 27 December 2022 in OJ L 332) corrected technical errors in the original text. The corrected text is what practitioners should use as the authoritative version.

A further amendment, Commission Delegated Regulation (EU) 2023/363, modified certain provisions of the RTS, entering into force on 20 March 2023, primarily addressing multi-option products and making additional technical corrections.

Structure of the RTS

The RTS is organised into six chapters containing 68 articles, followed by five annexes containing the PAI indicator tables and standardised disclosure templates:

Chapter I, Definitions and General Provisions (Articles 1-3)

Article 1 provides technical definitions used throughout the RTS, including:

  • "Financial undertaking", an AIFM, UCITS management company, investment company, credit institution, investment firm, insurance undertaking, or reinsurance undertaking
  • "Non-financial undertaking", any undertaking that is not a financial undertaking
  • "Sovereign exposure", exposures to central governments, central banks, and supranational issuers
  • "Environmentally sustainable economic activity", as defined by the Taxonomy Regulation

Article 2 sets the general principle for website disclosures: information must be accurate, fair, clear, not misleading, simple, and concise. Changes to website disclosures must clearly explain the revisions and the date they were made.

Article 3 provides an extensive cross-reference table mapping each Chapter of the RTS to the corresponding SFDR article it implements.

The definitions in Article 1 are critical. "Enterprise value" is defined precisely as the sum of market capitalisation of ordinary shares, preferred shares, and book value of total debt and non-controlling interests, at fiscal year-end, without deducting cash. This definition underpins numerous PAI indicator calculations. Using a different enterprise value definition (e.g., EBITDA-based) would produce non-compliant results.

Chapter II, Principal Adverse Impacts (Articles 4-10)

This chapter translates Article 4 of SFDR into specific technical requirements for the PAI statement:

  • Articles 4-5: Content requirements for the entity-level PAI statement (financial market participants)
  • Articles 6-7: Content requirements for PAI statements by financial advisers
  • Article 8: Requirements for investments in sovereigns and supranationals
  • Articles 9-10: Requirements for real estate investments

The key provisions include the requirement to measure at four quarterly dates and average the results, the historical comparison requirement, and the "comply-or-explain" provisions for firms below the 500-employee threshold.

Chapter III, Pre-Contractual Disclosures (Articles 11-49)

This is the most extensive chapter. It specifies the content and format of pre-contractual disclosures for different product types and classifications:

  • Articles 11-13: Pre-contractual disclosures for Article 8 products (using Annex II template)
  • Articles 14-17: Pre-contractual disclosures for Article 9 products (using Annex III template), including EU Taxonomy alignment calculation rules (Article 17)
  • Articles 18-36: Sector-specific adaptations (insurance products, pension products, different product types without KIDs/KIIDs)
  • Articles 37-49: Products with a range of underlying investment options (multi-option products)

Think of Chapter III as a detailed instruction manual with different sections for different types of products. The basic instructions (Articles 11-17) apply to all straightforward UCITS or AIF products. The sector-specific sections (Articles 18-36) are like specialist instructions for products with different wrappers, an IBIP has different pre-contractual document requirements than a UCITS fund, so the instructions are adapted accordingly.

Chapter IV, Website Disclosures (Articles 50-57)

These articles specify website disclosure requirements for financial products (implementing Article 10 of SFDR). They provide a list of information elements that must be available on the website for each Article 8 and Article 9 product, as well as requirements for financial advisers.

Chapter V, Periodic Reports (Articles 58-67)

Chapter V specifies requirements for periodic (annual) reports under Article 11 of SFDR:

  • Articles 58-62: Periodic reporting for Article 8 products (using Annex IV template)
  • Articles 63-67: Periodic reporting for Article 9 products (using Annex V template)

Key requirements include the sustainability indicators table, the asset allocation breakdown, the top investments list, and the historical comparison requirement.

Final Provisions (Article 68)

Article 68 provides the date of entry into force and application. The RTS entered into force on the twentieth day following publication in the Official Journal and applied from 1 January 2023.

The Five Annexes

The annexes contain the PAI indicator tables and standardised disclosure templates:

AnnexContentApplies to
Annex IPAI indicator tables (Tables 1-5)Entity-level PAI statement
Annex IIPre-contractual disclosure template, Article 8All Article 8 products (with conditional sections for benchmark products)
Annex IIIPre-contractual disclosure template, Article 9All Article 9 products (with conditional sections for benchmark products)
Annex IVPeriodic report template, Article 8Annual reports for Article 8 products
Annex VPeriodic report template, Article 9Annual reports for Article 9 products

Each pre-contractual and periodic annex contains conditional sections that apply only when the product uses a designated reference benchmark, firms with benchmark products complete the additional sections within the same template, rather than using a separate annex.

The Layered Disclosure Architecture

The RTS creates a three-layer disclosure architecture for each Article 8 or 9 product:

  1. Pre-contractual document (prospectus, KID/KIID, or equivalent): Uses the relevant standardised Annex template. Must be received before the investment decision.

  2. Website disclosure (Article 10, Chapter IV): Provides expanded information on the investment strategy, methodology, and data sources. Linked from the pre-contractual document via hyperlink.

  3. Periodic report (Article 11, Chapter V): Uses the relevant Annex IV (Article 8) or Annex V (Article 9) template. Provided annually after the investment period, showing actual results against disclosed commitments.

These three layers must be internally consistent, the same sustainability indicators and targets disclosed in the pre-contractual document must be reported on in the periodic report.

How the three layers work together in practice:

An investor buys into an Article 8 fund managed by Amundi or BlackRock.

  1. Before investing: The investor receives the pre-contractual document (KIID or KID). It includes a standardised Article 8 section (using Annex II or III template) stating the fund promotes low-carbon characteristics, applies specific exclusions, and commits to at least 30% sustainable investments.

  2. Website: The pre-contractual document hyperlinks to the fund's sustainability page. There, the investor finds the full methodology: how carbon intensity is calculated, which ESG data provider is used, how the 30% sustainable investment figure is measured.

  3. Annual report: At year-end, the periodic report (Annex IV template) shows whether the fund actually achieved its stated targets, did it maintain at least 30% sustainable investments? Was carbon intensity at least X% below the benchmark? Was there any shortfall, and if so, why?

The three layers must tell a consistent story.

Practical Implementation Challenges

The RTS created significant compliance burdens for the industry:

  1. Template compliance: All existing pre-contractual documents for Article 8 and 9 products had to be revised to use the standardised Annex templates by January 2023

  2. Data infrastructure: The PAI indicator formulas require granular data that many FMPs did not have structured data management systems for

  3. Proportionality: The RTS applies different templates for different product types (UCITS with KIID, UCITS with KID, products without KID/KIID, insurance products, pension products), requiring firms to implement multiple template workflows

  4. Cross-border products: Products marketed in multiple Member States may need disclosures in multiple languages and must comply with the template requirements for all applicable product types

Key Takeaways

  • 1The RTS (Commission Delegated Regulation 2022/1288) is the Level 2 rulebook specifying exact content, format, and calculation methods for all SFDR disclosures
  • 2The RTS contains six chapters (68 articles) covering definitions, PAI requirements, pre-contractual disclosures, website disclosures, and periodic reports, plus five annexes with templates
  • 3Enterprise value is precisely defined: market cap (ordinary + preferred) + book value of total debt + non-controlling interests at fiscal year-end, without deducting cash
  • 4The three-layer disclosure architecture requires consistency across pre-contractual documents, website disclosures, and periodic reports for each product
  • 5Always use the corrected RTS text (post-corrigendum of 27 December 2022 and the 2023/363 amendment) as the authoritative version
  • 6Different product types (UCITS, AIFs, IBIPs, pension products) use adapted template workflows - firms must implement the correct template for each product type

Knowledge Check

1.How many chapters and annexes does the SFDR RTS (Commission Delegated Regulation 2022/1288) contain?

2.From which date did the RTS provisions (Level 2 requirements, including standardised disclosure templates) become mandatory?

3.What is defined in Article 1 of the RTS as 'enterprise value' for PAI indicator purposes?

4.What is the three-layer disclosure architecture created by the RTS for Article 8 and 9 products?

5.What does the RTS Article 2 general principle require for all website disclosures?

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