Regulation on sustainability-related disclosure in the financial services sector
The Commission put forward the action plan on financing sustainable growth in March 2018. As part of action 9 of the action plan – on strengthening sutainability disclosure – the European Commission followed through on this action in May 2018 with a proposal for a regulation on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341. The proposal was adopted as part of the sustainable finance package.
The disclosures regulation was adopted by co-legislators in spring 2019 and was published on 9 December 2019 in the Official Journal. It is already in force but will apply from 10 March 2021.
It lays down sustainability disclosure obligations for manufacturers of financial products and financial advisers toward end-investors. It does so in relation to the integration of sustainability risks by financial market participants (i.e. asset managers, institutional investors, insurance companies, pension funds, etc., all entities offering financial products where they manage clients’ money) and financial advisers in all investment processes and for financial products that pursue the objective of sustainable investment.
In addition, the co-legislators added disclosure obligations as regards adverse impacts on sustainability matters at entity and financial products levels, i.e. whether financial market participants and financial advisers consider negative externalities on environment and social justice of the investment decisions/advice and, if so, how this is reflected at the product level. The reason is that investment decisions and financial advice might cause, contribute to or be directly linked to negative material effects on environment and society, regardless of whether the investment strategy pursue a sustainable objective or not, such as investments in assets that pollute water or devastate bio-diversity, to ensure the sustainability of investments.
It consists of a directly applicable regulation introducing additional disclosure requirements to the existing elements of relevant sectoral legislations (AIFMD, UCITS, Solvency II, IDD and MiFID II), via a self-standing text (lex specialis) providing full harmonization, cross-sectoral consistency and regulatory neutrality.
The co-legislators saw merit in accompanying disclosures of adverse sustainability impacts by regulatory technical standards (RTS) jointly developed by the ESAs on the content, methodologies and presentation of the relevant information to be disclosed under this Regulation. The ESAs have submitted the draft RTS to the Commission in February 2021 and proposed that the RTS should apply from 1 January 2022. . Owing to the length and technical detail of those regulatory technical standards, the late submissions to the Commission by the ESAs, and envisaged amendments, the Commission decided to delay the application of these RTS to July 2022 to facilitate the smooth implementation of the standards by product manufacturers, financial advisers and supervisors.