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The European ESG Template (EET), a new complex and ambitious project developed by FinDatEx
The EET background
The mission of FinDatEx is, in essence, to ease the process of data exchange between stakeholders in the operation of European Financial Market legislation, via the use of standardised technical templates.
In the same way that they implemented the European MiFID Template (EMT) in order to facilitate the exchange of market data from fund groups to distributors, this February they released another first-draft data exchange template, namely the European ESG Template (EET).
The goal of the EET is to provide an overview of the regulatory requirements from the Regulatory Technical Standards (RTS) under the Sustainable Finance Disclosure Regulation (SFDR) level 1, which will apply throughout the EEA on January 1, 2023. This will both ease the process for financial market participants when exchanging ESG data, as well as facilitate compliance to the delegated acts complementing MiFID II (Markets in Financial Instruments Directive), and IDD (Insurance Distribution Directive).
The EET introduces the concept of establishing clients' sustainability preferences during advice processes, as well as the straightforward exchange of ESG-related data between the manufacturer and distributor of financial products.
What information is included in the EET and what are the key timelines?
Let's make it clear, the EET is not mandatory reporting, but a standardised template developed by the industry (FinDatEx) for the banking, fund, and insurance sectors. It contains a number of data fields to ensure the implementation of the new EU regulation SFDR level 1 and RTS, as well as MiFID II and IDD.
The content of the EET is defined by the regulations that apply to the specific financial product in question, for instance, the SFDR information on sustainable and non-sustainable product related sections include:
- Disclosure, sustainability preferences;
- EU Taxonomy related information;
- Screening criteria;
- Article 8 and Article 9 information.
The template will also contain information on Principal Adverse Impact (PAI) indicators relating to investment in investee companies, investment in sovereigns & supranational, and investment in real assets, thereby covering MiFID/IDD related questions.
There are two key regulatory deadlines for the submission of the EET:
- MiFID II & IDD sustainable preferences: 2nd August 2022
- SFDR & EU Taxonomy Level 2: 1st January 2023
However, FinDatEx recommends that the financial participants adhere to intermediary deadlines to be able to collect, compute, and produce the required initial data fields:
- MiFID II & IDD sustainable preferences: 1st June 2022
- SFDR & Taxonomy Level 2: 1st November 2022
Overall, the publication of the EET is not restricted to annual frequency. Furthermore, the data within the EET should reflect the most updated information disclosed in the pre-contractual and periodic impact statement, plus any relevant changes made to the products' characteristics.
Why the need for the EET?
In short, the EET will simplify the ESG data exchange process between financial market participants.
It will do so by enabling the exchange of machine-readable ESG data for financial products, in order to allow manufacturers using underlying funds/financial products (Funds of Funds, Multi-option products, etc) and distributors to fulfill their own SFDR reporting requirements and PAI statement at both product and company level.
Additionally, the EET contains a wide range of ESG indicators, including greenhouse gas emissions, fossil fuel usage, non-renewable energy use, and hazardous waste output; alongside social and employee issues, including the gender pay gap and employee exposure to controversial weapons. Such an array of ESG indicators will empower financial market participants to accurately explain a fund's ESG characteristics.
Greenomy is closely following the development of EET to ensure a complete integration in our solution to allow our clients to get access to the full range of services for the successful implementation of their own SFDR and EU Taxonomy requirements. We at Greenomy have already developed a SaaS based digital solutions to help you tackle the EU Taxonomy/SFDR/NFRD/CSRD challenge: try it yourself, book a demo here.