In March 2021, a new European Union regime on sustainability-related disclosures in the financial sector will come into force. However, such provisions should not impede the effective application of this Regulation or the achievement of its objectives. 2. (7) Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). 2. SUSTAINABLE FINANCE DISCLOSURE REGULATION KEY REQUIREMENTS The EU’s Regulation on sustainability-related disclosures in the financial services sector (the SFDR) was published in December 9 and forms part of the EU’s package of measures relating to Environmental, Social and Governance (ESG) issues. 1. This consultation follows up several actions already undertaken by the recently appointed European Commission towards the objective of a greener and more sustainable European economy. Financial market participants shall ensure that any information published in accordance with Article 3, 5 or 10 is kept up to date. Regulation. Where financial market participants deem sustainability risks not to be relevant, the descriptions referred to in the first subparagraph shall include a clear and concise explanation of the reasons therefor. The Paris Agreement adopted under the United Nations Framework Convention on Climate Change (the ‘Paris Agreement’), which was approved by the Union on 5 October 2016 (3) and which entered into force on 4 November 2016, seeks to strengthen the response to climate change by, inter alia, making finance flows consistent with a pathway towards low greenhouse gas emissions and climate‐resilient development. One of these changes is the entry into force of the Sustainable Finance Disclosure Regulation (SFDR), for which businesses need to start preparing now. Member States shall ensure that the competent authorities designated in accordance with sectoral legislation, in particular the sectoral legislation referred to in Article 6(3) of this Regulation, and in accordance with Directive 2013/36/EU, monitor the compliance of financial market participants and financial advisers with the requirements of this Regulation. 1. … Where financial market participants, taking due account of their size, the nature and scale of their activities and the types of financial products they make available, consider principal adverse impacts, whether material or likely to be material, of investment decisions on sustainability factors, they should integrate in their processes, including in their due diligence processes, the procedures for considering the principal adverse impacts alongside the relevant financial risks and relevant sustainability risks. 2. By 10 September 2022 and every year thereafter, the ESAs shall submit a report to the Commission on best practices and make recommendations towards voluntary reporting standards. Therefore, for the purposes of pre‐contractual disclosures and disclosures in periodical reports, it is necessary to distinguish between the requirements for financial products which promote environmental or social characteristics and those for financial products which have as an objective a positive impact on the environment and society. The exemption from this Regulation for financial advisers which employ fewer than three persons should be without prejudice to the application of the provisions of national law transposing Directives 2014/65/EU and (EU) 2016/97, in particular the rules on investment and insurance advice. (2) Position of the European Parliament of 18 April 2019 (not yet published in the Official Journal) and decision of the Council of 8 November 2019. Disclosures Regulation. It is yet another indicator that environmental, social and governance matters are growing in importance as a compliance issue for financial institutions. Power is delegated to the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010. Senior Consultant - UK Fund Services, Melville Rodrigues considers what they need to do. The sustainability risk assessments and related pre‐contractual disclosures by financial market participants should feed into pre‐contractual disclosures by financial advisers. The EU Disclosures Regulation is the framework upon which regulatory technical standards will be established and it outlines how the investment funds industry will need consider the information it discloses to … 1. The competent authorities shall have all the supervisory and investigatory powers that are necessary for the exercise of their functions under this Regulation. The Commission set up a technical expert group on sustainable finance (TEG) to assist it notably in the development of a unified classification system for sustainable economic activities, an EU green bond standard, methodologies for low-carbon indices, and metrics for climate-related disclosure.The TEG began work in July 2018 and its mandate has been officially extended until year-end 2019. The ESAs shall, through the Joint Committee, develop draft regulatory technical standards to specify the details of the content and presentation of information referred to in paragraph 1. (11) Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013 on European venture capital funds (OJ L 115, 25.4.2013, p. 1). Where a financial product has sustainable investment as its objective and no index has been designated as a reference benchmark, the information to be disclosed pursuant to Article 6(1) and (3) shall include an explanation on how that objective is to be attained. As a consequence, as regards the financial products with environmental or social characteristics, financial market participants should disclose whether and how the designated index, sustainability index or mainstream index, is aligned with those characteristics and where no benchmark is used, information on how the sustainability characteristics of the financial products are met. Where EuSEF managers make available information on the positive social impact that is the objective of a given fund, on the overall social outcome achieved and on the related methods used in accordance with Regulation (EU) No 346/2013, they might, where appropriate, use such information for the purposes of the disclosures under this Regulation. On 8 April 2020, the European Commission (EC) issued a consultation on Renewed Sustainable Finance Strategy. Articles 8 and 9 of the Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability related disclosures in the financial services sector A National Climate Assessment study forecasted that climate-related natural disasters will reach 10 percent of the global GDP by the end of the century1. The ESAs may develop, through the Joint Committee, draft implementing technical standards to determine the standard presentation of information on the promotion of environmental or social characteristics and sustainable investments. This Regulation shall apply from 10 March 2021. Start date: 21 Sep 2020. New EU regulations on sustainable finance and associated investor expectations pose challenges for fund managers. Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial services sector, as amended. For the purposes of this Regulation, the competent authorities shall cooperate with each other and shall provide each other, without undue delay, with such information as is relevant for the purposes of carrying out their duties under this Regulation. The ESAs shall, through the Joint Committee, develop draft regulatory technical standards to specify the details of the presentation and content of the information to be disclosed pursuant to this Article. Financial market participants should include on their websites information on those procedures and descriptions of the principal adverse impacts. (16) Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC (OJ L 331, 15.12.2010, p. 48). Consultation. 2. Transparency of adverse sustainability impacts at entity level. regulations on Sustainability-related Disclosures in the Financial Ser-vices Sector as well as the EU Climate Transition and EU Paris-Aligned Benchmarks. The Commission Communication of 22 November 2016 on the next steps for a sustainable European future links the SDGs to the Union policy framework to ensure that all Union actions and policy initiatives, both within the Union and globally, take the SDGs on board at the outset. Where financial market participants make available a financial product as referred to in Article 8(1) or in Article 9(1), (2) or (3), they shall include a description of the following in periodic reports: for a financial product as referred to in Article 8(1), the extent to which environmental or social characteristics are met; for a financial product as referred to in Article 9(1), (2) or (3): the overall sustainability‐related impact of the financial product by means of relevant sustainability indicators; or. The current disclosure requirements set out in Union law do not require the disclosure of all the information necessary to properly inform end investors about the sustainability‐related impact of their investments in financial products with environmental or social characteristics or financial products which pursue sustainability objectives. The closest regulation to come into force is the Sustainable Finance Disclosure Regulation – in short SFDR. The Disclosure Regulation forms part of a package of legislative initiatives designed to promote the engagement of financial services providers in building a sustainable economy of the future. 1. By 30 December 2022, for each financial product where a financial market participant applies point (a) of Article 4(1) or Article 4(3) or (4), the disclosures referred to in Article 6(3) shall include the following: a clear and reasoned explanation of whether, and, if so, how a financial product considers principal adverse impacts on sustainability factors; a statement that information on principal adverse impacts on sustainability factors is available in the information to be disclosed pursuant to Article 11(2). EIOPA should issue guidelines specifying how investment decisions and risk assessments by IORPs are to take into account environmental, social and governance risks under that Directive. 5. On 24 May 2018 the Commission , published three proposals for regulations reflecting the EU's efforts to connect finance with its own sustainable development agenda. Member States shall notify the Commission and the ESAs of any decision taken pursuant to paragraph 2. The European Supervisory Authorities (ESAs) have proposed technical standards on what will need to be disclosed under the Sustainable Finance Disclosure Regulation (SFDR). 2. Financial market participants shall include in the information to be disclosed pursuant to Article 6(1) and (3) an indication of where the methodology used for the calculation of the indices referred to in paragraph 1 of this Article and the benchmarks referred to in the second subparagraph of paragraph 3 of this Article are to be found. By 30 December 2022, the Commission shall evaluate the application of this Regulation and shall in particular consider: whether the reference to the average number of employees in Article 4(3) and (4) should be maintained, replaced or accompanied by other criteria, and shall consider the benefits and proportionality of the related administrative burden; whether the functioning of this Regulation is inhibited by the lack of data or their suboptimal quality, including indicators on adverse impacts on sustainability factors by investee companies. Under Directive (EU) 2016/2341, IORPs are already required to apply governance and risk‐management rules to their investment decisions and risk assessments in order to ensure continuity and regularity. The Sustainable Finance Disclosure Regulation In order for Europe to reach its international environmental commitments and targets, the EU regulatory landscape is undergoing considerable changes. Transparency of sustainable investments in pre‐contractual disclosures. THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION. a credit institution which provides portfolio management; ‘insurance undertaking’ means an insurance undertaking authorised in accordance with Article 18 of Directive 2009/138/EC; ‘insurance‐based investment product’ or ‘IBIP’ means: an insurance‐based investment product as defined in point (2) of Article 4 of Regulation (EU) No 1286/2014 of the European Parliament and of the Council (19); or. Read more Where information in Article 11(2) includes quantifications of principal adverse impacts on sustainability factors, that information may rely on the provisions of the regulatory technical standards adopted pursuant to Article 4(6) and (7). Even though this Regulation does not cover national social security schemes covered by Regulations (EC) No 883/2004 and (EC) No 987/2009, in view of the fact that Member States increasingly open up parts of the management of compulsory pension schemes within their social security systems to financial market participants or other entities under private law, and as such schemes are exposed to sustainability risks and might consider adverse sustainability impacts, promote environmental or social characteristics or pursue sustainable investment, Member States should have the option to apply this Regulation with regard to such schemes in order to mitigate information asymmetries. The co-legislators saw merit in accompanying disclosures of adverse sustainability impacts by regulatory technical standards (RTS) jointly developed by the ESAs guidelines on the content, methodologies and presentation of the relevant information to be disclosed under this Regulation. Financial market participants shall include in the information to be disclosed pursuant to Article 6(1) and (3) an indication of where the methodology used for the calculation of the index referred to in paragraph 1 of this Article is to be found. 1. 2. This Regulation seeks to achieve more transparency regarding how financial market participants and financial advisers integrate sustainability risks into their investment decisions and investment or insurance advice. That report shall be made public and be transmitted to the European Parliament and to the Council. The Sustainable Finance Disclosure Regulation; The Taxonomy Regulation ; In summary, the Non-Financial Reporting Directive (NFRD) requires large EU “public interest” corporates (including many financial services firms) to publish data on the impact their activities have on ESG factors. SUSTAINABLE FINANCE DISCLOSURE REGULATION KEY REQUIREMENTS The EU’s Regulation on sustainability-related disclosures in the financial services sector (the SFDR) was published in December 9 and forms part of the EU’s package of measures relating to Environmental, Social and Governance (ESG) issues. Sustainable finance – EU classification system for green investments Gustav Mahlerplein 62, 1082 MA Amsterdam, The Netherlands +31 (0)20 235 86 00 | email@example.com | www.inrev.org 17 December 2020 INREV* welcomes the opportunity to contribute to the European Commission’s consultation on a draft delegated act under the Taxonomy Regulation. ESG Disclosures for Asset Managers Under the EU Sustainable Finance Disclosure Regulation and Taxonomy Regulation Sidley Austin LLP European Union , United Kingdom June 25 2020 EU Taxonomy Regulation for Sustainable Activities; The creation of various standards and labels for green financial products, such as an EU Ecolabel for Financial Products and EU Green Bond Standard, is also on the regulatory agenda. 2018/0179(COD) Proposal for a. This Regulation shall be binding in its entirety and directly applicable in all Member States. 1. The ESAs shall update the regulatory technical standards in the light of regulatory and technological developments. 2. It is therefore essential that financial market participants and financial advisers provide the information necessary to enable end investors to make informed investment decisions. In so doing, it can ultimately impact on the risk‐return of financial products. 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