Environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters. The Disclosure Regulation is also supplemented by amendments to Level 2 legislation, notably Commission Delegated Regulation (EU) 231/2013 supplementing AIFMD in relation to exemptions, general operating conditions, depositaries, leverage, transparency and supervision. Firms with more than 500 employees have no option but to publish a statement on their website in relation to adverse sustainability impacts. Let me start with a warm welcome to our newest colleague, Commissioner Crenshaw. We use cookies to improve your experience on our website. Our global industry teams work together to share knowledge and experience so that we can provide our clients with insightful, innovative commercial advice. Specific requirements include pre-contractual disclosures; disclosures on websites and disclosures in periodic reports in relation to financial products. Of chief importance is the Taxonomy Regulation, which is currently making is way through the EU legislative process and which we discuss in our briefing here. environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters). The PDF server is offline. Its aim is to enhance transparency regarding integration of environmental, social and governance matters (“ESG”) into investment decisions and recommendations. The Taxonomy Regulation prescribes additional information that needs to be disclosed in relation to pre-contractual disclosures and periodic reports for these types of products. Further publications are to be expected. The following information will need to be published on websites in relation to products promoting environmental or social characteristics or a combination of these characteristics; or financial products which have sustainable investment as their objective: For financial products that promote, among other characteristics, environmental or social characteristics, or a combination of those characteristics, periodic reports will need to include a description on the extent to which environmental or social characteristics are met (Article 8). The Disclosure Regulation introduces the idea of "principal adverse impact of investment decisions on sustainability factors" and requires disclosure (at entity level) where a firm has decided to take these into account. In relation to financial products promoting environmental or social characteristics, the following will be need provided: Where a financial product has sustainable investment as its objective and an index has been designated as a reference benchmark, information to be included will consist of: Where no index has been designated, pre-contractual disclosures will include an explanation of how the sustainable investment objective is to be attained. The pre-investment disclosure obligations (see below) require AIFMs to include information on ESG considerations in the disclosures mandated under Article 23(1) of AIFMD. We bring together lawyers of the highest calibre; progressive thinkers driven by the desire to help our clients achieve business success. An environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment. information on how the designated index is aligned with that objective; an explanation as to why and how the designated index aligned with that objective differs from a broad market index. Reliance on principles-based disclosure rules alone can only work when regulators have the requisite resources, information, expertise, skepticism, and independence from industry. The Disclosure Regulation, part of the EU Sustainable Action Plan, provides a central schedule of obligations for environmental, social and governance (“ESG”) related disclosures in the EU financial services sector. Having a deep understanding of our clients' industries and the challenges that they face is key to delivering excellent legal advice. (go back), 4ESMA Technical Advice on Sustainable Finance, available here. This information will include details on how principal adverse sustainability impacts are prioritised, brief summaries of engagement policies, reference to any adherence to responsible business conduct codes and internationally recognised standards for due diligence and reporting. 1Regulation (EU) 2019/2088, available here. (go back), 2Proposal for a Regulation on the Establishment of a Framework to Facilitate Sustainable Investment, latest text available here. Where they do not consider adverse impacts of investment decisions on sustainability factors, clear reasons for why they do not do so must be set out. not only those managing ESG funds or funds with a sustainable investment objective). the manner in which sustainability risks are integrated into their investment decisions (i.e. Other barriers to ESG disclosure reform include companies’ fears of securities fraud litigation and legal obstacles to new disclosure regulation. Material personally selected by your relationship manager for your interest. ESMA published final advice in April 2019 on changes that will need to be made to the AIFMD Delegated Regulation in order to incorporate sustainability risks. Where an index has been designated as a reference benchmark, a comparison will be needed between the overall sustainability‐ related impact of the financial product with the impacts of the designated index and of a broad market index through sustainability indicators. For more information on how we use cookies, or how to change your browser settings, please see our Cookie Policy. In April 2019, ESMA published final report in relation to technical advice to the European Commission on integrating sustainability risks and factors in the UCITS Directive and AIFMD. The Disclosure Regulation applies to asset managers pursuing any strategy not only impact funds, or products marketed as “ESG-friendly” although there are more onerous obligations for funds which specifically promote sustainability characteristics or Such firms will need to publish, on their website, information on due diligence policies with respect to those impacts, taking due account of their size, the nature and scale of their activities and the types of financial products they make available. The recitals to the Disclosure Regulation states that these requirements are intended to sit alongside provisions in AIFMD and other EU legislation concerning remuneration (e.g. The EU Regulation on sustainability-related disclosures in the financial services sector (the Disclosure Regulation) came into force at the end of December 2019 and will apply 15 months later. New European ESG Disclosure Standards for Funds: Consultation on Key Provisions . AIFs, UCITS). It is yet another indicator that environmental, social and governance matters are growing in importance as a compliance issue for financial institutions. The Disclosure Regulation will require the integration of sustainability risks in financial market participants' investment decision-making processes or, where relevant, advisory processes and transparency as regards financial products which target sustainable investments, including reduction in carbon emissions. Commissioner Allison Herren Lee Aug. 26, 2020. Following the categorisation of the product, the relevant disclosures, summarised below, may be required. These include AIFMs; investment firms providing portfolio management (as defined in Article 4(1)(8) of MiFID II); institutions for occupational retirement provision (IORP); and UCITS management companies. 1. Regulation S-K and ESG Disclosures: An Unsustainable Silence. “Sustainability factors” are environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters. Please try after sometime. SFDR imposes new transparency obligations and periodic reporting requirements on investment management firms at … We bring together lawyers of the highest calibre with the technical knowledge, industry experience and regional know-how to provide the incisive advice our clients need. [6] Managers should take note of this scrutiny and allow time to formulate ESG policies and practices that are tailored to their businesses and investment approaches ahead of the requirements of the Disclosure Regulation taking effect next year. Sign up to receive the latest legal developments, insights and news from Ashurst. The Disclosure Regulation defines “sustainability factors” as “environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters”. The Disclosure Regulation seeks to harmonise existing provisions on disclosures to investors in relation to sustainability-related disclosures by imposing requirements on so-called financial market participants (e.g. In 2018, a climate risk disclosure bill was introduced in the Senate. You may unsubscribe at any time.