Regulation On Sustainability‐Related Disclosures In The Financial Services Sector Published!

In response to growing concerns over climate change, and as part of broader efforts to connect finance with the specific needs of the European and global economy for the benefit of the planet and our society, the European Union has been examining how to integrate sustainability considerations into its financial policy framework in order to mobilise finance for sustainable growth.

The action plan

In March 2018, the European Commission published an action plan on sustainable finance (the "Action Plan") specifically aiming to:

reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth; manage financial risks stemming from climate change, resource depletion, environmental degradation and social issues; and foster transparency and long-termism in financial and economic activity. The publication of the Regulation (EU) 2019/2088 of the European Parliament and of the Council on sustainability‐related disclosures in the financial services sector (the "Regulation") on 9 December 2019 marks a new milestone in the European Union's journey towards a more sustainable financial sector and is a major step in the Action Plan.

The Regulation - initial impact analysis

The much awaited Regulation applies to all financial market participants, including in particular AIFMs, UCITS management companies, and investment firms, but also applies to financial advisers, and foresees new, mandatory transparency requirements both at entity/asset manager level and at product level.

The new transparency requirements include disclosures on:

the integration of sustainability risks in the investment decisions-making process or the investment advice process, the consideration of principal adverse impacts of an investment decision on sustainability factors, and information on how remuneration policies are consistent with the integration of sustainability risks. At product level, financial market participants will be expected to describe:

the manner in which sustainability risks are integrated into their investment decisions, the likely impacts of sustainability risks on the returns of the financial products made available, and how the financial products made available consider principal adverse impacts on sustainability factors. Additional disclosure requirements are foreseen for financial products that promote, among other characteristics, environmental or social characteristics, or a combination of those characteristics, and for...