On 27 November 2019, Regulation (EU) 2019/2088 (“ESG Disclosures Regulation”) on sustainability-related disclosures in the financial services sector came into force and the regulation will apply 15 months later. The regulation forms part of a number of initiatives adopted by the European Commission as part of its Action Plan on Sustainable Finance adopted in March 2018.
Apart from the ESG Disclosures Regulation, these include:
- a regulation amending the Benchmark Regulation in relation to low carbon benchmarks and positive carbon impact benchmarks;
- a regulation on the establishment of a framework to facilitate sustainable investment; and
- delegated regulations amending MiFID II Delegated Regulation 2017/565 (“LVL 2 MiFID II”) and Commission Delegated Regulation (EU) 231/2013 (“LVL 2 AIFMD”) to integrate ESG4 considerations and preferences into investment advice and portfolio management and to incorporate sustainability risks.
The ESG Disclosures Regulation seeks to harmonize existing provisions on disclosures to investors in relation to sustainability-related disclosures by imposing requirements to a wide range of cross-sectoral financial market participants (e.g. UCITS management companies and investment firms) and financial advisers (e.g. MiFID II6 investment firms and credit institutions) in relation to financial products (e.g. alternative investment funds (“AIF”) and undertakings for collective investment undertakings (“UCITS”)). Due to the cross-sectoral approach of the ESG Disclosures Regulation, the regulation ensures a “level playing field”. Ultimately, the regulation seeks to contribute in eliminating “greenwashing”, i.e. a form of marketing in which green values are deceptively used to persuade investors that the financial products of a financial market participant or financial adviser are environmentally friendly and therefore “better”.
This contribution gives an overview of the EU efforts to ensure the convergence with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in the processes of Fund Managers, Financial Advisers and the provision of sustainability-related information with respect to their Financial Products.
Source: ACE Review – September 2020