Developments in ESG disclosure

AFM publishes focal points for reporting by listed companies
On 31 October, the Netherlands Authority for the Financial Markets (AFM) released new focal points for its supervision of (ESG-)reporting by listed companies. The AFM expects companies to focus on recent ESMA supervisory priorities and sustainability when preparing their 2024 reporting. It will scrutinise materiality considerations, scope and structure, and Article 8 Taxonomy Regulation disclosures in sustainability reporting. Additionally, the AFM expects clear communication on how companies plan to achieve net-zero by 2050, including uncertainties and challenges. For ESRS reporting, companies are referred to publications such as the ESMA ‘Off to a good start’ statement.

ESMA publishes statement on accounting for carbon allowances in financial statements
On 8 October, ESMA published a public statement titled ‘Clearing the smog: Accounting for Carbon Allowances in Financial Statement’. It reviews various accounting approaches observed in the financial statements of European listed issuers regarding carbon pricing programmes. It encourages issuers to consider which IFRS Accounting Standards could be applied to account for carbon allowances in their financial reporting. Additionally, the statement calls for consistency by recommending that issuers carefully align the information provided regarding carbon allowances in their financial statements with the disclosures required under the European Sustainability Reporting Standards (ESRS).

EC takes action to ensure complete and timely transposition of CSRD
On 26 September, the EC started infringement procedures by sending letters of formal notice to 17 EU member states for having not (yet) fully transposed the CSRD into their national laws. The transposition deadline expired on 6 July 2024. Belgium, Czechia, Germany, Estonia, Greece, Spain, Cyprus, Latvia, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia and Finland now have two months to respond and complete their transposition.

SBTN publishes pilot outcomes, proving the concept of science-based targets for nature
On 23 September, the Science Based Targets Network (SBTN) published the outcomes of its year-long corporate pilot program. The findings show that science-based targets for nature provide a solid pathway for ambitious action, with most participants receiving validation for some or all their goals. While some companies used the pilot as a chance to gain insights for future commitments, others are now preparing to publicly adopt their targets. SBTN is calling on companies to begin their journey toward science-based targets by using its methods to understand their impacts on nature.

Taskforce on Inequality and Social-related Financial Disclosures launched

On 23 September, the Taskforce on Inequality and Social-related Financial Disclosures (TISFD) was launched. The TISFD serves as the ‘social’ equivalent of the Task Force on Climate-Related Financial Disclosures (TCFD) and the Task Force on Nature-related Financial Disclosures (TNFD). It will commence work on an evidence-based reporting framework that addresses on inequality and social-related topics. The framework aims to help companies measure, report, and disclose the financial impacts of social inequality. Stakeholders can join the TISFD Alliance to contribute to its technical work and share knowledge.

IAASB approves new international standards on sustainability assurance
On 20 September, the International Auditing and Assurance Standards Board (IAASB) approved the new International Standard on Sustainability Assurance (ISAA 5000). This principle-based standard aims to serve as an internationally applicable reference point that should guide future assurance practices concerning sustainability information, independently of the reporting framework used. The final text of the ISSA 5000 still needs to be certified by the Public Interest Oversight Board and is expected to be published by the end of the year.

ACM: "Banks are allowed to collaborate with regard to sustainability reports"
On 15 August, the Authority for Consumers & Markets (ACM) issued an informal letter permitting Dutch banks to collaborate on their sustainability reports in response to a request of the Dutch Banking Association (NVB). The ACM does not foresee the collaboration having any negative consequences such as price increases or quality reductions. Simultaneously, the NVB announced an initiative where banks will work together on a data project aimed at clarifying certain sustainability criteria on which banks must report. In this context, they assess what data is needed and identify suitable and reliable calculation methods. The collaboration is currently a pilot project, focusing on the transport, agricultural, and real estate sectors.

EC publishes CSRD FAQs
On 7 August, the EC published frequently asked questions (FAQs) to provide additional clarity on the EU sustainability report rules (CSRD) and issued several clarifications concerning the interpretation of certain provisions of the first set of European Sustainability Reporting Standards (ESRS). The FAQs address also key topics such as the scope of the rules, how to determine company sizes, timelines for compliance and applicable exemptions. The EC also clarifies which sets of ESRS should be used while offering guidance about employing estimates when companies cannot obtain value chain data. Furthermore, it outlines sustainability information requests that SMEs should anticipate due to the CSRD. The FAQs also cover audit and assurance-related issues, including auditor approval and training requirements and accreditation requirements for independent assurance providers.

EFRAG publishes study on early implementation of ESRS
On 25 July, the European Financial Reporting Advisory Group (EFRAG) published a study outlining some of the practices and challenges observed in the early stages of ESRS implementation by 28 large EU undertakings. The study covers double materiality assessment (DMA), data points (DP), value chain (VC) and organisational approaches to ESG reporting. Most undertakings recognise the value of a thorough, objective, evidence-based DMA as a strategic exercise. Their approaches range from a more data-driven approach to a more judgment-based approach. Many companies have not yet integrated the DMA outcomes into their gap analysis of DPs to be reported and most of them use Implementation Guidance 3 (EFRAG IG 3) to perform a gap analysis. For VC, several companies have adopted a simplified aggregated value chain mapping and use transitional provisions. The companies agree that CSRD reporting has increased cross-departmental collaboration, highlighted the need to standardise ESG reporting processes, and required some additional skills and resources.

NGFS publishes information note on improving GHG emissions data
On 16 July, the Network for Greening the Financial System (NGFS) published an information note on improving greenhouse gas (GHG) emissions data, with the objective to raise awareness among central banks and supervisory authorities of the challenges associated with the compilation and use of GHG emissions data. The note highlights several issues that should be addressed to improve GHG emissions data, and thereby reduce the climate data gap for different use cases in the financial system. Collaboration, standardisation, the use of new technologies, and the improvement of transparent and comparable disclosure are identified by the NGFS as critical success factors.

GRI publishes Q&A on ESRS and GRI interoperability
On 10 July, the Global Reporting Institute (GRI) released a Q&A on the meaning of the ESRS for organisations that already apply GRI Standards in their sustainability reporting. The document lists existing and new resources to support interoperability between the GRI Standards and the ESRS. Additionally, it specifies how GRI, ESRS and IFRS sustainability disclosure standards align with each other, highlighting their different approaches to materiality.

ESMA publishes measures to support corporate sustainability reporting
On 5 July, the European Securities and Markets Authority (ESMA) published a final report on the Guidelines on Enforcement of Sustainability Information (GLESI) and a public statement on the first application of the ESRS. The GLESI provide guidance on how to align supervisory practices on sustainability reporting. The public statement is intended to assist large issuers in navigating the learning curve associated with the implementation of these new reporting requirements. The documents are accompanied by an explanatory video and visuals.

AFM publishes 10 points to navigate through the CSRD's double materiality analysis
On 4 July, the AFM published a set of 10 waypoints to help companies prepare for the double materiality analysis under the CSRD. To gain insight into how listed companies are already disclosing on key themes in the double materiality analysis in their 2023 annual reports, the AFM conducted research into 29 companies. The waypoints published are based on this research and the ESRS. The AFM will start supervising the application of the CSRD from the 2024 annual reporting cycle, through regular desktop reviews and thematic research.

ISO starts work on international net zero standard
On 27 June, the International Organization for Standardization (ISO) announced that it has launched a working group to develop the first International Standard on Net Zero. This independently verifiable standard will build on the ISO Net Zero Guidelines and is expected to be launched at the 2025 UN Climate Change Conference (COP30). Experts that wish to contribute can contact the ISO member of their country.

EFRAG issues new Q&A with explanations of the ESRS
On 26 June, EFRAG released an updated version of its Compilation of Explanations for January-July 2024, adding 23 new explanations and bringing the total number to 93. Noteworthy additions include explanations on: (i) the ‘may’ and ‘shall’ reporting requirements; (ii) the entity specific and ESRS 2 disclosure requirements; (iii) the use of appendices in the structure of the sustainability statement; (iv) the overlap between ESRS 2 and topical standards; and (v) GHG emissions and annual update and disaggregation of total emissions.

Council adopts position on green claims directive
On 17 June, the Council adopted its position on the green claims directive, which aims to combat greenwashing and help consumers make greener choices when buying a product or using a service. Of interest are: (i) the requirement of independent third-party verification of environmental claims, to be completed before the claim is made; (ii) rules on carbon credits, more specifically the distinction between emission reductions and removals, and (iii) new rules on transparent labelling. The Council’s position inter alia provides more flexibility in the use of carbon credits and introduces a simplified verification procedure for certain types of explicit claims. The position will form the basis for negotiations with the European Parliament, which are expected to start in the new legislative cycle.

Dutch CSRD implementation decree submitted to Parliament
On 12 June, the Dutch Minister for Legal Protection submitted a draft decree for the partial implementation of the Corporate Sustainability Reporting Directive (CSRD) to both houses of the Parliament. The houses have four weeks to comment on the draft decree before it will be submitted to the Council of State for consultation. The draft decree implements a significant part of Article 1 of the CSRD (reporting requirements), selected parts of Articles 15, 18, and 27 of Article 2 of the CSRD (assurance statements and audit committees), and paragraph 2 of Article 5 of the CSRD. Further implementation will take place through the CSRD Implementation Act (Wet implementatie richtlijn duurzaamheidsrapportering), which is currently being drafted. Officially, the CSRD must be fully implemented by 6 July 2024.

EFRAG publishes three ESRS IG documents (EFRAG IG 1 to 3)
On 31 May, the European Financial Reporting Advisory Group (EFRAG) issued three ESRS Implementation Guidance documents (EFRAG IG 1 to 2), providing essential guidance to ensure organisations effectively implement and comply with ESRS standards, promoting transparency and consistency in sustainability reporting.

• EFRAG IG Materiality Assessment provides an illustrative materiality assessment process for undertakings, and develops the concept of impact and financial materiality with a number of examples, including how these two concepts interact.
• EFRAG IG 2 Value Chain outlines the reporting requirements for the value chain from materiality assessment to policies and actions to metrics and targets. It illustrates the group’s reporting boundary for sustainability reporting, including the concept of operational control in environmental standards.
• EFRAG IG 3 ESRS Datapoints translates the full ESRS Set 1 list of detailed requirements in each Disclosure Requirement and related Application Requirements into Excel format. The file includes additional information, such as the types of requirement (for example, quantitative or qualitative) or whether these are subject to transitional provisions and can be used as the basis for a data gap analysis or data collection exercise.

EFRAG publishes compilation of Q&As on the implementation of the ESRS
On 30 May, EFRAG published a compilation of 68 answers to the questions received through its Q&A platform on the implementation of the European Sustainability Reporting Standards (ESRS). Key questions relate, for example, to the minimum number of material sustainability matters to be disclosed, the disclosure of thresholds and the role of administrative, management and supervisory bodies.

Joint EFRAG and ISSB guidance on interoperability with a focus on climate change reporting
On 2 May, EFRAG and the International Sustainability Standards Board (ISSB) published joint guidance on interoperability between the ISSB Standards and the ESRS, with a particular focus on climate reporting. The guidance describes the alignment of disclosure requirements and information necessary for both sets of standards to ensure interoperability. It shows that companies reporting under the EU standards can comply with the global standards with minimal additional effort.

EP adopts regulation on ESG rating activities
On 24 April, the EP adopted the regulation on ESG rating activities. It addresses how ESG ratings are undertaken and communicated. As a rule, separate E, S and G ratings will be provided rather than a single aggregated ESG metric. This breakdown is intended to enable investors to focus their investments more effectively on one of the three areas and to gain a fuller understanding of the credentials of the rated company. The rules will require rating agencies to explicitly disclose whether the rating provided assesses how the rated entity impacts and is impacted by E, S and G factors (double materiality). Once the translated texts of the proposal have been confirmed by the EP, the Council will have to formally agree to the proposal.

Corrigendum to ESRS published in Official Journal
On 19 April, a corrigendum to the European Sustainability Reporting Standards (ESRS) was published in the Official Journal. The corrigendum contains minor textual amendments to ESRS 1 (‘General requirements’), ESRS 2 (‘General disclosures’) and the topical ESRS.

EP adopts directive to postpone adoption of new ESRS
On 10 April, the EP adopted the directive on the deadlines for the adoption of sustainability reporting standards (ESRS) for certain sectors and for certain third-country undertakings in scope of the Corporate Sustainability Reporting Directive (CSRD). The directive will delay the adoption of these standards until 30 June 2026, giving companies more time to prepare for the sectoral European Sustainability Reporting Standards (ESRS) and specific standards for large non-EU companies. On 29 April, the directive was formally approved by the EC. It will soon be published in the Official Journal and will apply 20 days after publication.

PSF publishes report on monitoring capital flows to sustainable investments
On 4 April, the EU Platform on Sustainable Finance (PSF) published an intermediate report on the monitoring of capital flows, proposing a methodological framework for monitoring private capital flows towards the objectives of the European Green Deal. The report outlines the conceptual framework underlying the methodology, as well as the proposed conceptual framework for characterising and measuring capital flows into investments in activities, products, technologies, and sectors that contribute to the environmental and strategic autonomy objectives of the EU Green Deal (i.e., capital expenditures by real economy entities). The report is accompanied by annexes containing an analysis of the Green Deal investment gap, which will serve as a reference for the implementation of the proposed framework.

ESRB publishes report on climate-related risks and financial reporting
On 3 April, the European Systemic Risk Board (ESRB) published a report on how International Financial Reporting Standards (IFRS) can reflect climate-related risks from a financial stability perspective. The report identifies four areas where financial stability can be improved: (i) the incomplete incorporation of climate-related risks in market prices; (ii) the impact of climate-related risks on the initial and subsequent valuation of non-financial assets and liabilities; (iii) the incorporation of climate factors in models used to estimate expected credit losses; and (iv) disclosure requirements on how climate-related risks are reflected in financial statements. The ESRB proposed corresponding amendments to existing IFRS accounting standards.

SEC climate-related disclosures rules adopted and temporarily halted
On 6 March, the US Securities and Exchange Commission (SEC) adopted the climate-related disclosure rules for US public companies. The rules will be phased in gradually, with ‘large accelerated filers’ first reporting in FY 2025. Notably, scope 3 reporting has been removed from the rules, while companies will be required to report on scope 1 and 2 emissions, if material. The rules generally align with the disclosure framework of the former TCFD recommendations. As the rules do not allow for substitution, in-scope companies may, for example, be in scope of both the SEC rules and the Corporate Sustainability Reporting Directive (CSRD). On the day of adoption, litigation against the rules was announced from various angles. On 15 March, a US Court of Appeals temporarily halted the application of the rules while it hears an administrative appeal to the rules.

EC adopts delegated regulation on sustainability disclosures for STS securitisations
On 5 March, the EC adopted a delegated regulation setting out regulatory technical standards (RTS) on environmental disclosure standards for Simple, Transparent and Standardised (STS) securitisations. Under the Securitisation Regulation, originators of STS securitisations may voluntarily make disclosures on the principal adverse impacts on sustainability factors of assets backed by residential loans, car loans or leases. The RTS set out certain standards for these voluntary disclosures, including the content, methodologies and presentation of information. Originators of STS securitisations may choose to comply with the requirements of the Securitisation Regime or the alternative requirements of the RTS. The RTS supplements the EU Securitisation Regulation (2017/2402) and will enter into force on 25 March 2024.

EFRAG publishes second set of Q&A's on ESRS
On 1 March, the European Financial Reporting Advisory Group (EFRAG) released a second set of Questions & Answers to collect views and information from stakeholders on the implementation of the European Sustainability Reporting Standards (ESRS) through its Q&A platform. EFRAG's answers are categorised as cross-cutting, environmental, social and other.

Provisional agreement on 2-year delay of ESRS reporting for certain sectors and third country companies
On 7 February, the EP and the Council reached a provisional agreement on a directive on the deadlines for the adoption of sustainability reporting standards (ESRS) for certain sectors and for certain third-country undertakings in scope of the Corporate Sustainability Reporting Directive (CSRD). The directive will postpone the adoption of these standards until 30 June 2026, giving companies more time to prepare for the sectoral European Sustainability Reporting Standards (ESRS) and specific standards for large non-EU companies. The provisional agreement must now be formally adopted by both institutions and will apply immediately upon its entry into force.

EFRAG publishes first set of technical Explanations relating to the ESRS
On 5 February, the first set of 12 responses to questions submitted via the EFRAG ESRS Q&A platform was published. EFRAG launched this platform in Q4 2023 to collect and answer technical questions to assist preparers and other stakeholders in implementing the ESRS issued as Delegated Act. Of the 258 questions received as of 31 January 2024, 127 are expected to result in either an Explanation (106) or an Implementation Guidance (21) and 17 are still under preliminary analysis. The remaining questions are considered to be either not technical (30), covered by other questions or existing guidance (45) or inconclusive/out of scope (39). Most of the Q&A Explanations are already in the process of being drafted.

Provisional agreement on Regulation on ESG rating activities
On 5 February, the Council and EP reached a provisional agreement on a proposal for a Regulation on ESG rating activities. The proposal aims to increase investor confidence in sustainable financial products. It requires ESG rating providers to be authorised and supervised by ESMA and to meet strict transparency requirements. The provisional agreement clarifies the scope and territorial application of the regulation and introduces principles on the separation of business activities to avoid conflicts of interest. ESG rating providers will be able to provide separate E, S and G ratings. Where a single rating is provided, the weighting of the factors should be made explicit. Non-EU ESG rating providers operating in the EU will also be in scope. The provisional agreement must now be formally adopted by both institutions and will apply 18 months after its entry into force.

EFRAG launches consultation on draft XBRL Taxonomy for ESRS Set 1 and Article 8 disclosures
On 8 February, the European Financial Reporting Advisory Group (EFRAG) launched its public consultation on the draft ESRS Set 1 XBRL Taxonomy. EFRAG is also consulting s on the draft XBRL Taxonomy for Article 8 disclosures. The digital taxonomies enable the marking up ('tagging') of sustainability reporting in machine-readable XBRL format. Each taxonomy is accompanied by an 'Explanatory Note and Basis for Conclusions'. It illustrates the basis for conclusions, the methodology used and the technical options considered in developing the taxonomies. It also includes illustrations of the reporting in machine-readable format to support the implementation of the Taxonomies and to obtain more informed feedback during this consultation. The consultation is open until 8 April 2024.

CSRD: MEPs agree to delay adoption of sustainability reporting standards for certain sectors and third-country companies
On 24 January, Members of the European Parliament (MEP’s) voted in favour of the EC proposal to postpone the adoption deadline for (i) sector-specific sustainability reporting standards and (ii) general sustainability reporting standards for third country companies until June 2026. MEPs believe that sector-specific sustainability reporting standards enable comparisons between companies and are therefore a valuable source of information for investors. They suggested that the EC publishes eight sector-specific reporting standards as soon as they are ready before the deadline.

EFRAG launches public consultation on two exposure draft ESRS for SMEs
On 22 January, EFRAG launched a public consultation on the Exposure Draft ESRS for listed SMEs (ESRS LSME ED) and the Exposure Draft for the voluntary reporting standard for non-listed SMEs (VSME ED). The purpose of these ESRS is to set reporting requirements that are proportionate and relevant to the scale and complexity of the activities, as well as the capacities and characteristics of SMEs. The consultation is open until 21 May 2024.

EP adopts directive to empower consumers for the green transition
On 17 January, the EP adopted a Directive amending the Consumer Rights Directive and the Unfair Commercial Practices Directive, aiming to empower consumers for the green transition. Complementing the proposed Green Claims Directive, which will apply to businesses, this Directive will provide consumers with improved information and enforcement rights. Firstly, a number of market practices related to greenwashing and the early obsolescence of goods will be added to the list of banned commercial practices. Secondly, general environmental claims like ‘environmentally friendly’, ‘climate-neutral’ and ‘eco’ without proof and other misleading information will be banned. Thirdly, only sustainability labels based on approved certification schemes or established by a public authority will be allowed. Fourthly, guarantee information has to be more visible and a new guarantee extension label will be introduced. The directive is subject to final approval by the Council, after which it will be published in the Official Journal. It will then have to be transposed into national law within 24 months.

ESAs publish consolidated Q&As on the SFDR and Delegated Regulation
On 12 January, the three European Supervisory Authorities (EBA, EIOPA and ESMA - the ESAs) published consolidated Q&As on the SFDR and the SFDR Delegated Regulation. This document combines answers given by the Commission to questions requiring interpretation of Union law under Article 16b(5) of the ESA Regulations, which are color coded in blue, and responses generated by the ESAs relating to the practical application or implementation of SFDR under Article 16b(1) of the ESA Regulations, which are not color coded.

ESAs launch consultation on draft implementing technical standards specifying certain tasks of collection bodies and certain functionalities of the ESAP
On 8 January, the ESAs published a consultation paper on the draft implementing technical standards (ITSs) relating to the tasks of the collection bodies and the functionalities of the European Single Access Point (ESAP). These ITSs and the requirements they set out are designed to enable future users to make effective use of the comprehensive financial and sustainability information centralised on the ESAP. The consultation runs until 8 March 2024.

EFRAG publishes three draft ESRS implementation guidance documents
On 22 December, the EU’s Financial Reporting Advisory Group (EFRAG) published its first draft ESRS implementation guidance documents for public feedback. Draft EFRAG IG 1 deals with the materiality assessment requirements of the European Sustainability Reporting Standards (ESRS). Draft EFRAG IG 2 addresses the value chain aspects of the ESRS. Draft EFRAG IG 3 contains the detailed ESRS datapoints implementation guidance (as a Microsoft Excel workbook) with an accompanying explanatory note. Stakeholders can provide feedback through the respective surveys until 2 February 2024.

Third draft EC Notice with FAQs about the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets
On 21 December, the European Commission published a draft Notice on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation, regarding the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets. The two previous Commission notices focused mainly on non-financial undertakings. This notice aims to provide financial undertakings with further guidance on the disclosure of their alignment with the EU Taxonomy applicable from January 2024, in the form of replies to Frequently Asked Questions (FAQs) on the reporting of their KPIs.

Council agrees on negation mandate on ESG ratings
On 20 December, the Council determined its negotiating mandate for a proposed regulation on ESG ratings, with the aim of boosting investor confidence in sustainable products. It is interesting to note that the Council (i) clarified the circumstances under which ESG ratings fall within the scope of the regulation and provided further details on the applicable exemptions; (ii) introduced a lighter, temporary and optional three-year registration regime for existing small ESG rating providers and new small market entrants; and (iii) introduced the possibility for ESG rating providers not to have a separate legal entity for certain activities, provided that there is a clear distinction between the activities and that they take measures to avoid conflicts of interest. Inter-institutional negotiations are expected to start in January 2024.

ESMA launches consultation on draft guidelines on enforcement of sustainability reporting under CSRD
On 15 December, ESMA launched a consultation on draft guidelines on the supervision of sustainability reporting by national competent authorities (NCAs). The draft guidelines cover topics such as (i) basic concepts (e.g. the objective of enforcement); (ii) the internal organisation of enforcement bodies; (iii) the selection of issuers whose sustainability information is to be verified; (iv) the verification of sustainability information; (v) the enforcement action to be taken if a violation is discovered during verification; and (vi) the European coordination of enforcement. The consultation is open until 15 March 2024. ESMA expects to publish the final guidelines by Q3 2024.

AFM welcomes the introduction of sustainability product classifications under the SFDR
On 14 December, the Dutch Authority for the Financial Markets (AFM) published its response to the European Commission's consultation on the Sustainable Finance Disclosure Regulation (SFDR). The AFM supports a transition to sustainability labels that are more consumer-friendly than the current transparency categories. The AFM believes that a system with product classifications (‘transition’, ‘sustainable’ and ‘sustainable impact’) will be better tailored to investors' perceptions and experiences and will facilitate sustainable investment decisions. The AFM also supports minimum disclosure requirements for all financial products, including ‘grey’ and ‘brown’ products. The AFM's response is based on its previously published position paper.

ESMA proposes changes and updates timeline for its guidelines on funds’ names
On 14 December, ESMA published a statement updating its plans for the adoption of guidelines on funds’ names using ESG- or sustainability-related terms. The statement follows a consultation paper published in November 2022 and the responses to it. Of note are the following changes to the guidelines: (i) the introduction of a new category for transition-related terms; (ii) the separation of ‘E’ from ‘S’ and ‘G’ terms; and (iii) the clarification that funds using ‘transition’- or ‘impact’-related terms in their names should ensure that the relevant investments generate measurable impacts or are on a clear and measurable path towards social or environmental transition. ESMA will postpone the adoption of the final guidelines to allow for full consideration of the outcome of the reviews of the Alternative Investment Fund Managers Directive and the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive.

Platform on Sustainable Finance calls for feedback on proposals for EU Taxonomy-aligning benchmarks
On 13 December, the Platform on Sustainable Finance (PSF) published for feedback a draft report on two voluntary EU taxonomy-aligning benchmarks (TABs). EU Taxonomy-aligning benchmarks are defined as benchmarks where the underlying assets are selected, weighted or excluded in such a manner that (i) the resulting benchmark portfolio is on a scaling environmentally sustainable CapEx trajectory; while (ii) the non-environmentally sustainable CapEx proportion is on a decarbonisation trajectory and is also constructed in accordance with the minimum standards laid down in the delegated acts of Paris-Aligned Benchmarks (EU PABs). The two proposed types of benchmarks are pursuing similar objectives, but differ in terms of their level of restrictiveness and ambition. EU TABs with exclusions are designed for more ambitious climate-related investment strategies and characterised by stricter activity exclusion requirements. EU TABs without exclusions allow for greater diversification and serve the needs of institutional investors with reciprocal business relationships with fossil fuel issuers. The consultation closes on 13 March 2024.

ESMA to launch a CSA on ESG disclosures for benchmark administrators
On 13 December, ESMA announced that it will launch a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on ESG disclosures under the Benchmarks Regulation (BMR). The CSA will focus on supervised benchmark administrators, located in the Union or in a third country that have obtained authorisation, registration, recognition or endorsement of their benchmarks under the BMR. The CSA will cover (i) disclosure of ESG factors in the benchmark statement and benchmark methodology; and (ii) specific disclosure requirements related to the climate benchmarks methodology. This is the first CSA for ESMA in its role as a direct supervisor of benchmark administrators.

EIOPA launches public consultation on its draft opinion on sustainability claims and greenwashing in the insurance and pensions sectors
On 12 December, the European Insurance and Occupational Pensions Authority (EIOPA) launched a consultation on its draft opinion setting out four principles that should be observed when providers make sustainability claims. Sustainability claims should be (i) accurate, precise, and consistent; (ii) kept up to date; (iii) substantiated with clear reasoning and facts; and (iv) their substantiation should be accessible by the targeted stakeholders. To make the proposed principles more concrete and to demonstrate how greenwashing can occur in practice, EIOPA has compiled examples of good and bad practices for each principle. The consultation closes on 12 March 2024.

ESMA publishes an update to the ESEF XBRL taxonomy files 2022 and ESEF Conformance Suite 2023
On 7 December, ESMA published an update to the European Single Electronic Format (ESEF) XBRL taxonomy 2022 files and the ESEF Conformance Suite 2023 to facilitate the implementation of the ESEF Regulation. It is limited to minor corrections aimed at improving usability, and updated Conformance Suite test fields.

Provisional agreement on the Ecodesign Regulation
On 4 December, the Council and the EP reached a provisional agreement on a Regulation for Ecodesign requirements for sustainable products, which will replace the existing Directive of 2009. The new regulation will cover almost all product categories. It establishes a harmonised framework for setting requirements for product groups to make them energy- and resource-efficient, as well as more durable, reliable and circular. It would also introduce a ban on destroying unsold clothing and footwear, which could be extended to other product groups at a later stage. Lastly, the regulation would introduce a ‘Digital Product Passport’ containing information on the product’s environmental sustainability.

IOSCO publishes report on supervisory practices to address greenwashing
On 4 December, the Board of the International Organization of Securities Commissions (IOSCO) published a report on supervisory practices to address greenwashing. The report follows the IOSCO on sustainability-related practices and disclosures and ESG Ratings, both published in November 2021, and the subsequent Call for Action published in November 2022. The report provides an overview of initiatives undertaken in different jurisdictions to address greenwashing, as well as regulatory best practices. The report also highlights the challenges in implementing the IOSCO recommendations. These challenges include data gaps, a lack of transparency, quality, and reliability of ESG ratings, inconsistent labelling and classification of sustainability-related products, evolving regulatory approaches, and capacity building needs.

ESAs: final report on Principal Adverse Impacts and financial product disclosures under SFDR
On 4 December, the three European Supervisory Authorities (ESAs) published the final report containing draft regulatory technical standards (RTS) on the review of Principal Adverse Impacts (PAI) and disclosure of financial products in the SFDR Level 2 Delegated Regulation. The ESAs propose to: (i) extend the list of social indicators for PAI; (ii) refine a number of other PAI indicators for adverse impacts; and (iii) introduce new financial product disclosures on greenhouse gas (GHG) emission reduction targets. Notably, the ESAs went beyond the explicit request of the EC by considering further changes, such as enhanced disclosure of how sustainable investments comply with the ‘do not significantly harm’ (DNSH)-principle and simplification of the templates contained in Annexes II to V of the SFDR Delegated Regulation.

See our overview of ESG disclosure updates in 2023 here