1. General information
The transition towards a greener and more sustainable economy has become a priority for the European Union (EU). The 2030 Agenda for Sustainable Development (the UN General Assembly ‘2030 Agenda’) has at its core the Sustainable Development Goals (SDGs) and covers the three dimensions of sustainability: Economic, Social and Environmental. The European Commission subsequently linked the SDGs with the next steps for a sustainable European future, based on the central sustainability factors known as ESG: Environmental, Social and Governance considerations.
In 2019 ‘The European Green Deal’ has been published and important regulations are currently now in force or under development with the view of achieving the sustainability goals and a climate- neutral Europe until 2050.
The EU legal framework has defined the following environmental objectives:
The integration of the sustainability considerations into the EU financial policy framework are presented in the European Action Plan on Sustainable Finance and in the EU Renewed Sustainable Finance Strategy.
ESMA is ensuring the integration of environmental, social and governance (ESG) factors across its core activities and has responded, inter alia, to the EU consultation on the EU Renewed Sustainable Finance Strategy
The current European discussion on the Green Bond Standard is given here.
2. European Legal Framework
On 18 June 2020, the Taxonomy Regulation was published in the Official Journal. The delegated acts are currently under elaboration.
Related developments can be also followed through information on the Platform on sustainable finance which will advise the European Commission on the development of technical screening criteria for the EU taxonomy, and policy development, amongst other things, as required by the Taxonomy Regulation. Following the latter, an EU Member States expert group on sustainable finance has also been established. Relevant updated information on the TAXONOMY delegated acts can be found on the European Commission's website and on the related EC's Announcement on the 21st of April 2021.
Sustainable finance disclosures regulation (SFDR)
Note that the TAXONOMY regulation has amended Regulation (EU) 2019/2088 (a consolidated version is available in the link above).
Most provisions of Regulation (EU) 2019/2088 start to apply from 10 March 2021. The draft Regulatory Technical Standards have been delivered on 4 February 2021 by the 3 ESAs to the European Commission and the latter is expected to endorse the RTS within 3 months. The ESAs have proposed in these draft RTS that the application date of the RTS should be 1 January 2022.
The draft RTS are given here:
On the Application of Regulation (EU) 2019/2088 on the sustainability-related disclosures in the financial services sector we refer to the letter of the EC to the ESAs (ESMA, EBA και EIOPA).
To this matter please also see the following letter of the 3 ESAs to the European Commission of 7 January 2021:
The ESAs issued a public supervisory statement before the application date of SFDR in order to achieve an effective and consistent application of the SFDR’s requirements and consistent national supervision of the SFDR.
The ESAs also initiated a consultation on taxonomy-related product disclosures under the Taxonomy Regulation which amends the empowerments in Articles 8(4), 9(6) and 11(5) of the SFDR.
Regulation on sustainability benchmarks
The above Regulations are supplemented by EC delegated acts.
Non - Financial Reporting
Article 8 of the Taxonomy Regulation
Article 8 of the TAXONOMY Regulation obliges undertakings covered by Directive 2014/95/EU (the ‘NonFinancial Reporting Directive’) to publish information on how and to what extent their activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation.
For this purpose, Article 8(2) requires non-financial undertakings to use three key performance indicators (‘KPIs’), namely the proportion of their turnover, their capital expenditure (‘CapEx’) and their operating expenditure (‘OpEx’) related to environmentally sustainable activities.
Article 8 does not specify any KPIs to be used by financial undertakings. Article 8(4) of the Taxonomy Regulation requires the European Commission to adopt a delegated act to supplement the above obligations by specifying the content, presentation and methodology of the information to be disclosed by both financial and non-financial undertakings subject to the Non-Financial Reporting Directive.
The European Commission has to adopt the delegated act by 1 June 2021. Following a call for advice from the European Commission, ESMA has requested input through the related consultation on the following aspects of the delegated act:
1) How should the three KPIs to be disclosed by non-financial undertakings be further specified?
2) What information should any asset managers subject to the Non-Financial Reporting Directive disclose on how their activities are directed at funding environmentally sustainable economic activities?
On the same date, EBA and EIOPA were also invited to provide similar advice on the delegated act to be adopted within their respective remits. ESMA, EBA and EIOPA are coordinating the three pieces of advice which will be delivered to the Commission. The deadline for the advice is end of February 2021.
Improved disclosure of non-financial information
Following the European Green Deal, companies and financial institutions are also called to improve their disclosure of non-financial information. Users of this information, mainly investors and civil society organisations, are demanding more and better information from companies about their social and environmental performance and impacts.
To this end, the review of the Non-Financial Reporting Directive (NFRD) is now under discussion as part of the strategy to strengthen the foundations for sustainable investment. This also reflects global trends, with a wide variety of different organisations and stakeholders calling for a consideration of a new regulatory approach to non-financial reporting.
More information can be found here. As well as on the links mentioned above with regard to TAXONOMY delegated acts.
DIRECTIVE 2014/95/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups
3. Additional information
Key challenges in the area of Sustainable Finance are summarized in the letter of ESMA to the European Commission, of 28 January 2021:
Study on Sustainability – Related Ratings, Data and Research:
Sustainable Finance and Taxonomy: Criteria defining environmentally sustainable activities- based on the recommendations of the Technical Expert Group on Sustainable Finance (TEG):
ESMA TRENDS RISKS & VULNERABILITIES REPORT (special section on sustainable finance) (Please also consult all related ESMA's reports, which are published twice per year).
4. Useful links
5. Useful links
Towards a green recovery: http://www.oecd.org/