ESG/Sustainable Finance Q3 Review

This fall has been a particularly busy season in the ESG/Sustainable Finance world. Many of our clients have reached out to us to unpack the latest rules and regulatory changes and their impact on business.

In this blog, we highlight many publications that will help you in your day-to-day operations.

31 October 2022:

The EU commission adopted the nuclear/gas the Regulatory Technical Standards (RTS) (Delegated Regulation (2022)7545) which amends 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 (SFDR) pre-contractual and periodic templates.

If European Parliament and Council do not object during scrutiny period, generally two months, then the regulation will be published in the official journal and enter into force on the third day after publication. This means that there will be no transitionary period for the adoption of these templates and they will need to be adopted by 3 January 2023.

10 November 2022 (*Updated on 28 November 2022):

The European Parliament adopted the Corporate Sustainability Reporting Directive (CSRD) proposed by the European Commission (EC) earlier in April 2021. CSRD introduces detailed reporting requirements on a company’s impact on the environment, human rights, and social standards, in line with EU’s climate goals.

Sustainability reporting should allow investors to have comparable and reliable data, as reports will need to be audited and certified.

The new sustainability reporting requirements will apply to large companies, whether listed or not, as well as non-EU firms with substantial EU activity. Listed SMEs will also be covered but will have more time comply with the new rules.

The EU Council adopted the proposal on 28 November 2022, after which it will be signed and published in EU Official Journal and enter in force 20 days from publication.

14 November 2022:

ESMA published a letter received from European Supervisory Authorities (ESAs) Joint Committee stating that the ESAs will be unable to meet the deadline 28 April 2023 for a review of the principal adverse impact indicators and financial product disclosures in the SFDR Delegated Regulation.

The letter refers to the mandate that the ESA chairs have been given to review the indicators for principal adverse impact (PAI) and the SFDR Delegated Regulation (i.e., any amendments to existing rules). ESAs were asked to provide their input within 12 months (i.e., by 28 April 2023).

The ESAs have identified significant challenges to deliver the required input as it relates to a substantial number of technical components to the work, as well as the need to seek input from a range of expert bodies or agencies as stated in the mandate. As part of this exercise, the ESAs wanted to develop a more objective basis to the Do No Significant Harm (DNSH) framework and to expand on social indicators, as well as the derivatives framework in the context of PAIs.

As such, ESAs have now informed that it will not be possible to meet the original deadline of 28 April 2023 and notified up to six-months delay for the delivery of this mandate.

15 November 2022:

The ESAs issued a joint call for evidence to better understand greenwashing, in response to the European Council’s request for input in May 2022.

As part of their work, ESAs issued call for evidence to collect stakeholders’ input on how to understand key features, drivers, and risks associated with greenwashing, as well as examples of potential greenwashing. This should help inform policymaking and supervision. The closing date for responses is 10 January 2023.

17 November 2022:

The ESA issued another set of Q&As aimed at clarifying additional technical and more generic points in the application of SFDR.

The document contains technical questions addressing the current value of all investments in PAI analysis and taxonomy-aligned disclosures.

It further considers the interpretation of the SFDR delegated regulation’s requirements with respect to the completion of precontractual, periodic disclosure templates in annexes to regulation.

18 November 2022:

ESMA issued a consultation on sustainability terms in fund names.

In essence, ESMA states that fund names should be supported by evidence of sustainability in a material way by fairly and consistently reflecting the sustainability goal in the fund’s investment objectives and policy.

ESMA proposes the introduction of quantitative thresholds for the minimum proportion of investments sufficient to support ESG terms in funds’ names, that is a quantitative threshold (80%) for funds using ESG related words, as well as an additional threshold (50%) for the use of a sustainability-related term only, as part of the 80% threshold. There are also specific considerations which apply for specific types of funds (e.g., index, impact funds).

The guidelines are expected to become applicable from three months after publication, subject to the results of the consultation, and will provide for a six-month transitionary period for funds launched prior to the application date.

The consultation is due to close on 20 February 2023 with a view to finalizing guidelines afterwards.

*28 November 2022:

On 23 February 2022, the European Commission submitted to the European Parliament and to the Council a proposal for a Directive on Corporate Sustainability Due Diligence (CSDD) and amending Directive (EU) 2019/1937. The proposal aims at advancing the European green transition and protect human rights in Europe and beyond.

The rules should ensure that the EU private and public sectors respect their international commitments to protect human rights, while at the same time fostering sustainable development and adhering to international trade rules.

On 28 November 2022 the EU Council issued a compromise proposal put forward by the Permanent Representative Committee which applies some changes to the text. In particular, the compromise text leaves out of the scope financial products (i. e. alternative investment funds (AIFs) and undertakings for collective investment in transferable securities (UCITS))

The Council is now invited to approve the compromise proposal.

If you have any questions or require support, the Zeidler team is here to help. Our global team of professionals remains up to date on the latest legal, regulatory and compliance changes affecting the asset management industry.

Contact us.