European Commission publishes sustainable finance package

The European Commission published a comprehensive package of three broad measures to encourage capital flows towards sustainable activities across the European Union.

However, questions remain about certain environmental classification decisions and market participants urge EU legislators to move quickly to develop its Technical Screening Criteria (TSC) for the bloc’s remaining environmental objectives.

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The package includes a proposal for new corporate sustainability reporting legislation, dubbed the Corporate Sustainability Reporting Directive (CSRD), which would replace the Non-Financial Reporting Directive (NFRD).

The proposed law would extend EU sustainability reporting requirements to all large as well as all listed companies. This translates into almost 50,000 companies required to follow detailed EU sustainability reporting standards, compared with the 11,000 that are subject to existing requirements.

The European Financial Reporting Advisory Group (EFRAG) would be responsible for developing the draft standards, which aim to cover the risks to companies from environmental and social matters but also their impact on society and the environment – the so-called double materiality perspective.

EFAMA, the European asset management lobby group, and BVI, its German counterpart, both gave the seal of approval for the CSRD plan and urged for its swift adoption.

Tanguy van de Werve, Director General of EFAMA, added, “The limited scope of the Non-Financial Reporting Directive and the inconsistent sustainability reporting ecosystem constrain investors’ ability to assess the ESG performance of investments.”

He said, “This CSRD proposal is essential in reducing the ESG data gaps faced by asset managers and supporting the development of green investment products. We call on the co-legislators to maintain the high level of ambition of the Commission’s proposal and to ensure its swift adoption. Time is of the essence.”

Implementation of the CSRD would also deliver the information asset managers and other investors need to comply with disclosure requirements as part of the Commission’s sustainable finance action plan.

Dominik Hatiar, regulatory policy adviser at EFAMA, the European asset management lobby group, noted, “The proposed mandatory, assured and digitalised European sustainability reporting standards will be the primary source of input for asset managers’ disclosures under the Sustainable Finance Disclosure Regulation (SFDR) and the EU taxonomy’s ‘green asset ratios’”.

In addition, the Commission published the “EU taxonomy climate delegated act” that is expected to support sustainable investment by clarifying which economic activities most contribute to meeting the EU’s environmental objectives.

It also amended six Delegated Acts on fiduciary duties, investment and insurance advice that will ensure that financial firms, such as asset managers, “include sustainability in their procedures and their investment advice to clients.

©Markets Media Europe 2021

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