European Supervisory Authorities (ESAs) update consolidated Q&As on the SFDR

On 4 August 2025, the European Banking Authority (“EBA”), European Securities and Market Authority (“ESMA”) and the European Insurance and Occupational Pension Authority (“EIOPA”), jointly known as the European Supervisory Authorities (ESAs), published its consolidated questions and answers (“Q&As”) on the Sustainable Finance Disclosure Regulation (the “SFDR”) and SFDR RTS (the “SFDR RTS”).

The updated consolidated Q&As clarify four additional points in relation to the interpretation of the SFDR, we summarise them below.

In Section IV: PAI Disclosures, the ESAs clarify two aspects of PAI disclosures:

• Question 30 – “water usage” and additional PAI indicator 6: The ESAs clarify that when looking at the “water usage and recycling” PAI indicator 6 in Table 2 of Annex I of the SFDR RTS, readers should refer to the definitions of “water consumption”, “water intensity” and “water (recycled and reused)” contained in the European Sustainability Reporting Standards (the “ESRS”) - Table 2 of Annex II - for the purpose of applying this PAI indicator. The Q&As also refer to other metrics in the ESRS which may be useful for this indicator.
• Question 31 – the meaning of ‘per square meter’ for indicators that apply to investments in real estate assets: When interpreting the meaning of ‘per square meter’ for the purpose of calculating 'Energy consumption in GWh of owned real estate assets per square meter', the ESAs clarified that “useful internal floor area” in the EU Taxonomy (activity 7.1 Construction of new buildings, footnote of the 3rd criteria for the substantial contribution) should be used. The Energy Performance of Buildings Directive sets out a definition of useful floor area in Article 2(51).

Section V: Financial Product Disclosures

• Question 29 – Best practice disclosure for pre-contractual disclosure when the minimum percentage of environmentally sustainable investments and socially sustainable investments do not add up to the total minimum proportion of sustainable investments in the asset allocation under the SFDR RTS Annexes II and III: The ESAs clarify that the percentages are minimum commitments, so the minimum percentage of environmentally sustainable investments and socially sustainable investments may not always equal the total minimum proportion of sustainable investments in the asset allocation section of Annexes II and III of the SFDR RTS. If this is the case, the ESAs recommend that it would be best practice for the financial market participant to include an explanation to clarify why this is the case in the asset allocation section in the template in Annexes II and III.
• Question 30 – How to calculate top investments or shares of investments for financial products in their periodic disclosures under Chapter V and Annexes IV and V of the SFDR RTS: The ESAs clarify that SFDR financial product periodic disclosures only complement the methodologies set out in the sectoral legislation referred to in Article 11(2) of the SFDR (e.g. the AIFMD) with specific sustainability-related disclosures. Therefore the ESAs cannot impose a specific way of calculating investments for the periodic reports as preparers of the periodic disclosure need to look to the relevant sectoral legislation in Article 11(2) of the SFDR.

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This note is intended to be a general guide to the latest ESG developments. It does not constitute legal advice.

Authored by Rita Hunter, Emily Julier, and Jessica Dhodakia.