21 December, 2020

Private Equity Comment: Sustainable Finance Disclosure Regulation, ELTIFs, And ESG Issues relating To ERISA

This edition of Private Equity Comment looks at the Sustainable Finance Disclosure Regulation, which fund managers will need to comply with beginning 10 March, 2021, an ongoing consultation on European Long Term Investment Funds, and the new regulations in the U.S. which could impact managers targeting ERISA investors.

Sustainable Finance Disclosure Regulation

The Sustainable Finance Disclosure Regulation will oblige fund managers to make certain disclosures, both on their website and in their fund documents, in relation to ESG and more particularly sustainability risks. The rules cover several different disclosure obligations including how managers and advisers integrate sustainability risks into investment decisions/advice and whether they consider the principal adverse impacts of their investment decisions/advice on sustainability factors. The initial disclosure requirements will come into force on 10 March, 2021. Further detail will be published through “regulatory technical standards” (RTS), but their introduction has been delayed and they will not be ready for the start date of 10 March, 2021. Instead, compliance with the “high level principles” of the regulation is expected from 10 March, 2021, and following the finalization of the RTS, more detailed compliance can then follow (expected to be from January 2022). For further details please see Goodwin’s recent client alert by clicking here and for an update of the position in Luxembourg please click here.

Consultation on European Long Term Investment Funds (ELTIFs)

European Long Term Investment Funds, or ELTIFs, were introduced in 2015 as a new vehicle that could be marketed to all investors (including retail investors) throughout the E.E.A. and facilitate investment in longer term real economy investments such as social and infrastructure projects, real estate and SMEs. However, the uptake has not been as the EU Commission would have hoped, and only 28 have been launched in the last five years with below €2 billion raised in total. This may be in part due to the additional regulatory obligations that fund managers need to comply with in exchange for the ability to market to retail investors, such as suitability assessments, compliance with the Prospectus Directive and the requirement to produce a Key Information Document under the Packaged Retail and Insurance-based Investments Products (PRIIPS) regulation, although any product made available to retail investors will fall within the scope of PRIIPS. In addition, the eligible assets that an ELTIF can invest in are fairly narrow. Despite these hurdles, it was thought that the ability to market freely to retail investors throughout the EU would tempt a certain number of managers to use this new vehicle. As a result of the low take up, the EU Commission launched a consultation in October to “better understand the reasons behind the low uptake and develop policy options to improve the attractiveness of the ELTIF regime.”

This presents an opportunity for alternative asset managers to play a part in reshaping the regulations on ELTIFs. It is unlikely that much of the additional regulation required will fall away, given the additional protection that is usually afforded to retail investors, but efforts by the then European Private Equity and Venture Capital Association (now Invest Europe) in 2013 and 2014 paid dividends in making the final text of the original regulation more attractive to fund managers, so it is possible that in 2021, and beyond, ELTIFs may become more popular as alternative asset fund vehicles.


At the end of October, the U.S. Department of Labor released an amended regulation on investment duties under ERISA which, among other changes, will suppress the consideration of environmental, social and governance (“ESG”) issues by investment fiduciaries. In essence, it requires that investment decisions by fiduciaries must be based solely on “pecuniary” factors. This will not directly affect managers who do not hold “plan assets,” as they are not fiduciaries, but fund managers who do operate funds that hold plan assets will need to comply. Non-plan asset managers may still feel the effects if they are marketing to ERISA investors, and although U.S. state pension plans are not subject to ERISA, many require their managers to follow ERISA-like standards. More detail can be found in the recent Goodwin client alert.

Note: On behalf of your Goodwin team, we would like to thank you for your continued support during this most challenging of years.

This year has seen us win Investment Fund Formation and Management Firm of the Year at the Legal 500 UK Awards 2020, as well as having been shortlisted for the following awards:

  • To vote for Private Equity: Law firm of the year in EMEA (fund formation), click here.
  • To vote for Real Estate: Law firm of the year in EMEA (fund formation), click here.

Private Equity International (PEI) and Private Equity Real Estate (PERE) conduct surveys every year to establish the top performers across over 135 categories globally and we are delighted to announce that Goodwin has been recognised as an outstanding performer in these areas.

To cast your vote for Goodwin, please take a moment to follow the above links. Voting is open until Friday, 8 January, 2021 and you must vote from a work email.

Thank you for again for helping us to achieve this recognition, and we look forward to continuing to work with you in 2021 and beyond.