The EU Regulation on sustainability-related disclosures in the financial services sector, one of the key legislatives measures proposed by the European Commission in its “Action Plan: Financing Sustainable Growth”, is to become law after being published in the Official Journal of the European Union.
It will enter into force on the twentieth day following that of its publication, yesterday, and will apply from March 10, 2021.
Back in March this year, a meeting between European Parliament, the Council of the EU and the Commission paved the way for a political agreement to adopt the draft Regulation, before Parliament dissolved for the European Election in May.
The original proposal was part of the Commission’s plan to update fiduciary duty, dubbed Action #7 in the Action Plan: clarifying institutional investors' and asset managers' duties.
The Regulation aims at providing harmonised rules for both “financial market participants and financial advisers” on ESG disclosures.
It is understood, however, that the first link in the chain of disclosures starts with corporates, which report part of this data under the Non-Financial Reporting Directive, a piece of legislation that predates the sustainable finance market momentum.
The revision of the NFRD, mentioned in a leaked version of the Commission’s European Green Deal to be released this week, is now seen by institutional investors as instrumental for the success of the Disclosures Regulation.
In addition, a meeting last Friday brought closer to a conclusion the other flagship legislative initiative, the draft regulation on the Taxonomy (whose official name is “the framework to facilitate sustainable investment”).
“Investors offering products with sustainable objectives must explain how these objectives are met.”
The Taxonomy Regulation seeks to determine “whether an economic activity is environmentally sustainable for the purposes of establishing the degree of environmental sustainability of an investment”.
It applies to “financial market participants offering financial products as environmentally sustainable investments”. The Taxonomy Regulation, as it now stands, has borrowed the definition of “financial market participant” from the Disclosure Regulation.
As reported by RI, there could also be overlaps between the scope of the Taxonomy and the NFRD.
When it comes to the corporates affected, the NFRD used the concept of Public Interest Entities which have more than 500 employees on average.
Depending on how the NFRD has been transposed in each member state, that could include: credit institutions and insurance undertakings irrespective of whether they are listed or not.
Martin Spolc, Head of the Sustainable Finance and Fintech unit at the Commission's Directorate General for Financial Services, tweeted: “The EU Disclosure Regulation released. As of 10 March 2021 investors must disclose how they take sustainability risks and adverse impacts into account in their investment decisions. Investors offering products with sustainable objectives must explain how these objectives are met.”