ESG – Reporting Part II EU-Regulation

Based on the Paris climate agreement and agenda 2030 from the United Nations, an EU action plan for a sustainable finance system was published. To create a strategy and plan for the reforms, a High-Level Expert Group (HLEG) on sustainable finance was founded in 2016.

The action plan’s target is to re-orient capital flows to sustainable investments, integrate sustainability into risk management, and promote sustainable financial products’ transparency.

These are some measures to achieve these targets:

• Development of an EU classification system for sustainability activities (Taxonomy) and sustainability benchmarks
• Standards and labels for green financial products
• Disclosure obligations
• Representation of ESG investment preferences (environmental, social, governance)

Based on these targets, a package of legislative proposals and non-legislative measures were presented, and a technical expert group was founded in 2018.

EU-Disclosure Regulation

As a part of the action plan for a sustainable financial system, the European Union published Regulation (EU) 2019/2088 of the European Parliament and the council on sustainability. This regulation comes into force on the 10th of March 2021 and includes disclosure requirements on sustainability risks for financial market participants.

“This Regulation lays down harmonised rules for financial market participants and financial advisers on transparency with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability‐related information with respect to financial products.”
(Article 1, Regulation 2019/2088)

The regulation contains two main topics:

Financial Market participants must be transparent regarding the sustainability risks of their products. In particular, they have to disclose the strategy and information on how they deal with sustainability risks.

The second part of the EU-Disclosure Regulation covers sustainable investments. Financial market participants should provide information on how they measure targets and the sustainability impact of sustainable investments. Therefore they need to create a report, which must be updated if something changes.

TEG final report on the EU taxonomy

The technical expert group is developing EU taxonomy. The EU’s taxonomy should help companies, investors, etc. to “navigate the transition to a low-carbon, resilient and resource-efficient economy” (Final report).

Therefore they created six environmental targets. A company is ecological if they reach one of these six targets while not harming any other targets. Moreover, they should fulfill minimum safeguards e.g. OECD Guidelines on multinational enterprises and the UN’s guiding principles on business and human rights.

Targets:

• Climate change mitigation
• Climate change adaptation
• Sustainability and the protection of water and marine resources
• Transition to a circular economy
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems

The technical expert group’s final report also includes a guideline for companies and financial service providers on how investors can handle this taxonomy. Currently, the EU’s taxonomy has not come into force, but it is expected to do so by the end of the year.
Additionally, once the taxonomy has come into effect, the European Union will still have to work on taxonomy, as the technical classification criteria are to be further developed.

The first stage of consultation and Mock-Ups on ESG-Reporting

The European Supervisory Authorities (ESAs) have begun the first stage of consultation to produce a universally binding template that will set standards for ESG-Reporting. The standardization of disclosure is essential to enable the comparability of different financial products. The aim is to create a template that will be mandatory. The graphic design is planned to be free for financial market participants.

The template’s final content will be defined based on consumer test results and the final report of the ESAs on the RTS draft under SFDR.

The ESAs have created three Mock-Ups and invite stakeholders to submit comments. Comments on the consultation paper can be submitted until the 16th of October 2020, which can be found via the EUsurvey tool.

To receive more information about the current status or our individualised ESG-Reporting solutions, feel free to contact us.

If you’d like to have future articles delivered conveniently to your inbox, please sign up for our newsletter.