ESG...
Here are the top seven
things you need to know:
1. What is the EU’s ESG initiative?
Adopted in 2018, the ESG initiative is the European Commissions action plan on sustainable finance. It aims at reorienting capital flows towards sustainable investments, proposes to manage financial risks stemming from environmental and social issues, and aims to foster transparency for market participants.
2. What are the key elements?
The key elements are the Sustainable Finance Disclosure Regulation (SFDR), the framework for taxonomy regulation, the suitability delegated regulation, and the Level 2 delegated acts to integrate sustainability into a firm’s systems and controls.
3. What is the status of the new rules and when do they come into force?
SFDR will apply as of March 10th 2021 with final regulatory technical standards to follow, the Framework Regulation is being phased in as from December 31st 2021, the other elements will follow at a later stage.
4. What are the key requirements of the Sustainable Finance Disclosure Regulation?
All its core, SFDR is basically a series of disclosure requirements. Importantly, some aspects of SFDR apply to all asset managers, whether they intend to promote ESG products or not.
5. What product level disclosures are required for ESG focused products?
SFDR requires an asset manager to disclose additional specified ESG-related information on its website, in the pre-contractual information for a financial product, and in the periodic information provided to investors in respect of financial products which promote environmental or social characteristics and products with sustainable investment or a reduction in carbon emissions as their objective. Articles 8 and 9 of the SFDR describe the categories of financial product that have an ESG focus. Article 8 products promote ESG characteristics, Article 9 products go a step further and have sustainable investment as their objective.
6. When are these initial disclosures due?
Although the final regulatory technical standards are yet to be published, the disclosures must be in place by March 10th 2021. Once the RTS are published, these disclosures may have to be updated.
7. What should you be doing now?
It makes sense to adopt a phased-in approach to compliance with the ESG framework. Your immediate priority should be SFDR. You will need to consider how to position your investment products and the corresponding disclosures required.
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