Sustainable Finance
Legislative and Regulatory Developments
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.
Sustainable finance continues to be a dominant theme for fund managers and we have considered a number of relevant initiatives in the Asset Management and Investment Funds section including the European Commission's review of SFDR Level 1, ESMA's Consultation on Funds' Names using ESG or Sustainability-related Terms and the ESAs' Consultation on SFDR Level 2.
In Finance and Capital Markets ESG investing is also of relevance and in that section we have also mentioned developments in relation to the EU Green Bond Standard.
NATIONAL DEVELOPMENTS
Banking and Lending – Recent Developments
ESG : Sustainable Lending
Sustainable finance remains an important focus for borrowers and lenders. In recent years, a number of sustainable lending products have emerged in the market and gained increasing traction. Various industry bodies are continuing to both drive and respond to these developments on behalf of their members. See detail on this in our Finance and Capital Markets section.
EU DEVELOPMENTS
This Directive is awaiting implementation.
The Corporate Sustainability Due Diligence Directive ("CS3D") will apply to EU-incorporated companies with more than 1,000 employees and net worldwide turnover of more than €450 million (including when consolidated with any subsidiaries) and non-EU incorporated companies that have generated more than €450 million of net turnover in the EU in two consecutive financial years. It can also capture companies that do not meet these thresholds but enter into certain franchising or licensing agreements. The legislation includes certain carve-outs in the financial services sector and also envisages that in-scope financial services sector companies will only be required to perform due diligence in respect of their ‘upstream’ chain of activities ( i.e excluding their customers).
See Corporate section.
ESMA’s Fund Naming Guidelines
The long-awaited Guidelines on Funds' Names using ESG and Sustainability-related Terms were published on 14 May 2024. These guidelines will require fund managers to review all of their funds' names and ensure that those using sustainability-related terms.
See Asset Management section.
EU DRAFT LEGISLATION
Proposed Regulation on ESG Rating Providers
Procedure reference: COM(2023)314 final
Date published: 13 June 2023
On 13 June 2023, the Commission published a proposal for a regulation on the transparency and integrity of ESG rating activities. The Commission noted that the ESG ratings market currently suffers from a lack of transparency and the Commission is aiming to improve the reliability and transparency of ESG ratings activities. New organisational principles and clear rules on the prevention of conflicts of interest will increase the integrity of the operations of ESG rating providers. The proposal will require that ESG rating providers offering services to investors and companies in the EU be authorised and supervised by ESMA. The proposal is intended to ensure the quality and reliability of their services to protect investors and ensure market integrity.
Latest stage: On 14 February 2024, COREPER (Committee of the Permanent Representatives of the Governments of the Member States to the European Union) officially endorsed the provisional agreement on the ESG Rating proposal. The European Parliament's Economic and Monetary Affairs Committee ("ECON") Committee is scheduled to approve the provisional agreement on 22 February 2024. After the approval by the ECON Committee, the text was sent to the European Parliament to be approved in plenary. The Parliament adopted the text on 22 April 2024.
Proposed Regulation on EU Standards for 'Green Bonds'
See Finance and Capital Markets section.