In this section we bring together various legislative and regulatory initiatives that are relevant to sustainable finance generally. This section represents a collaborative approach between the three practice areas of Asset Management and Investment Funds, Finance and Capital Markets and Financial Services Regulation.
This Spring we discuss sustainable finance as a 'predominant theme for fund managers throughout 2022' and have considered a number of relevant initiatives in the Asset Management and Investment Funds section including the Consultation on Fund Names' using ESG or Sustainability-related Terms in addition to the ESAs' Call for Evidence on Greenwashing initiative, both informing and supporting what are being experienced as key issues under the SFDR including definitions of terms such as 'sustainable investments'.
In Finance and Capital Markets ESG investing is also of relevance and in that section we have also mentioned the fourth round of trilogue discussions on the proposed EU Green Bond Standard which is expected to take place in Q1 of 2023.
EU LEGISLATION
Regulation on the Establishment of a Framework to Facilitate Sustainable Investment – The Taxonomy Regulation
Date published: 22 June 2020
This regulation – known as the Taxonomy Regulation (Regulation (EU) 2020/852) - forms part of the package of reforms published by the Commission in 2018 relating to its Sustainable Finance Action Plan. The regulation on the establishment of a framework to facilitate sustainable investment establishes an EU-wide classification system or taxonomy intended to provide businesses and investors with a common language to identify to what degree economic activities can be considered environmentally sustainable. The regulation sets out uniform criteria for determining whether an economic activity is environmentally sustainable.
Applies from: The Taxonomy Regulation applied from 1 January 2022 with respect to activities that substantially contribute to climate change mitigation and adaptation. The regulation applies with respect to activities that substantially contribute to the other environmental objectives (sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems) from 1 January 2023.
Article 8 of the Taxonomy Regulation requires additional disclosures from companies in scope of the non-financial reporting framework. Pursuant to the delegated act adopted under Article 8 of the Taxonomy Regulation, qualitative reporting by in-scope undertakings was required from 1 January 2022, with further requirements applicable to non-financial undertakings from 1 January 2023 and to financial undertakings from 1 January 2024.
The Commission has yet to adopt the technical screening criteria (Level 2 measures) with respect to the environmental objectives of sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems. It is expected that these criteria will be published in summer 2023.
Sustainable Finance: Commission Delegated Regulation amending the Sustainable Finance Disclosure Regulation Technical Standards
Date published: 17 February 2023.
This legislation (Commission Delegated Regulation (EU) 2023/363) introducing updated templates for pre-contractual and periodic disclosures under the SFDR applies from 20 February 2023. The updated templates, which are set out in annexes to the SFDR Level 2 regulation, have been amended to include disclosures relating to investments in nuclear and gas activities under the EU Taxonomy Regulation. The Central Bank has confirmed that it is introducing a fast-track filing process in relation to the updated annexes and has clarified that existing funds are expected to update their pre-contractual disclosures "as soon as possible and at the earliest available opportunity".
For more information, read our briefing note Updated SFDR Templates: The Central Bank Filing Process
CSRD: Directive Amending the Non-Financial Reporting Directive as regards Corporate Sustainability Reporting
See Corporate section.
EU DRAFT LEGISLATION
Proposed Regulation on EU Standards for 'Green Bonds'
Procedure reference: 2021/0191 (COD)
Date published: 7 July 2021
As one of the EU’s green finance initiatives, the European Commission proposed a voluntary EU green bond standard (GBS) under a proposed regulation on European green bonds (the “GB Regulation”) in July 2021. The proposal builds on a June 2019 report by the Commission's technical expert group on sustainable finance which recommended clear and comparable criteria for issuing green bonds. In December 2021, the rapporteur of the GB Regulation at the European Parliament published proposed amendments which fundamentally changed the original proposed regulation, including:
- a proposal that by December 2023 the European Commission should report to the European Parliament and European Council on the practicalities of making the European green bond label mandatory for bonds marketed as environmentally sustainable between 2025 and 2028; and
- a proposal to introduce mandatory requirements for sustainable bonds and their issuers.
The European Council’s proposed text of the GB Regulation released in April 2022 included a requirement for a binding clause in the terms of any green bond to comply in all material respects with the GBS.
Latest stage: On 8 June 2022, the plenary of the European Parliament confirmed the ECON Committee decision to open inter-institutional negotiations. Trilogue negotiations are ongoing with the fourth round of trilogue discussions expected to take place in early 2023. The initial positions of the three institutions was set out in February 2023 prior to the commencement of the trilogies.