ESG disclosure update

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.

European Green Bond Regulation published
On 30 November 2023, the European Green Bonds Regulation has been published in the EU Official Journal. The Regulation lays down uniform requirements for labelling an environmentally sustainable as a ‘European green bond’ (EuGB) in line with the technical screening criteria of the Taxonomy Regulation. The EuGB Regulation will apply as of 21 December 2024. 

ESAs provide clarity and tips to consumers on sustainable finance
On 30 November, the three European Supervisory Authorities (ESAs: EBA, EIOPA and ESMA) published an interactive factsheet for consumers on investments, loans, insurance and pensions with a sustainable focus. The factsheet provides answers to frequently asked questions and steps consumers can take to understand how their financial choices can contribute to a more sustainable future. The factsheet also provides tips for consumers to consider before choosing financial products with sustainability features, and includes helpful pop-up boxes that explain specific terms such as ‘ESG’ and ‘EU taxonomy', which can sometimes be intimidating and prevent consumers from understanding key financial concepts.

Basel Committee consultation on Pillar 3 climate risk disclosures
On 29 November, the Basel Committee on Banking Supervision issued a consultation paper on a Pillar 3 disclosure framework for climate-related financial risks. This work is part of the Committee's holistic approach to addressing climate-related financial risks to the global banking system. The Committee is analysing how a Pillar 3 disclosure framework for climate-related financial risks would further its mandate to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability, and the possible design of such a framework.

ESMA clarifies definitions and criteria for 'sustainable investments' and 'do no significant harm'
On 22 November, ESMA published three explanatory notes covering key topics of the Sustainable Finance Disclosure Regulation (SFDR), the Taxonomy Regulation (TR) and the Benchmark Regulation (BMR). The notes cover (i) the definition of sustainable investments and activities; (ii) the application of the ‘do no significant harm’ (DNSH) requirements; and (iii) the use of estimates. These notes do not add to, interpret or replace the relevant texts and have no legal effect, but can be useful to help stakeholders navigate the European sustainable finance framework.

EBA publishes final standards for regulatory authorities assessing new market risk internal models
On 21 November, the EBA published its final draft of the Regulatory Technical Standards (RTS) on the assessment methodology to be used by competent authorities to verify institutions' compliance with the requirements applicable to their internal models under the Fundamental Review of the Trading Book. Risks arising from climate change and wider environmental issues are changing the risk profile of the financial sector and will become even more important in the future. The RTS therefore explicitly require competent authorities to verify that institutions incorporate climate and related risks into their stress testing programmes for internal models. Given the novelty of this requirement, competent authorities will not assess this aspect before 1 January 2025.

Publication of and internet consultation on the Dutch implementation of the CSRD
On 20 November, the Dutch Ministry of Justice and Security launched an internet consultation on the Dutch implementation decision (Implementatiebesluit) on the Corporate Sustainability Reporting Directive (CSRD). The consultation addresses the Dutch implementation of the reporting requirements for corporates under the CSRD. Respondents can, for example, provide input on the exemption of various legal entities and financial institutions from the scope of the implementation decision, the consolidation options in relation to EU and non-EU ultimate parents, and Member State options. A previous consultation already covered the implementation of audit and transparency topics. The consultation closes on 18 December 2023.

EBA publishes final templates for collection of climate-related data from EU bankS
On 17 November, the European Banking Authority (EBA) published the final templates that will be used to collect climate-related data from EU banks as part of the one-off Fit-for-55 climate risk scenario analysis. The templates will be used to collect data from 110 EU banks, covering climate-related and financial information on credit risk, market and real estate risks. The templates are accompanied by template guidance, which includes definitions and rules for compiling the templates. The data collection started on 1 December 2023 and will end on 12 March 2024.

AFM and ESMA: points of attention for listed companies in their 2023 reporting
On 10 November, the AFM and ESMA jointly called on listed companies to address certain key areas of focus in their 2023 reporting. Focus areas are: (i) transparency on net zero targets, including plans, uncertainties, emissions reporting and any use of carbon credits; (ii) compliance with the double materiality principles under the CSRD from 1 January 2024, requiring companies to report on both external impacts and internal environmental and social impacts; and (iii) improving qualitative disclosures related to the Taxonomy Regulation. In addition, the AFM and ESMA recommend consulting ESMA's examples and recommendations on climate-related disclosures, using ESMA's guidance on alternative performance measures (APMs) when communicating with investors and analysts, and taking into account ESMA's European Common Enforcement Priorities.

EFRAG publishes draft of voluntary ESRS for non-listed Small- and Medium-Sized Enterprises 
On 8 November, EFRAG published a draft of ESRS for non-listed Small- and Medium-Sized Enterprises. These ESRS are voluntary and apply to undertakings that are out of scope of the CSRD. They are encouraged to use this standard to prepare and communicate sustainability information. These draft ESRS cover the same sustainability topics as the ESRS for large undertakings, but are based on the key concept of proportionality and therefore take into account the fundamental characteristics of SME’s.

Dutch SER and DASB publish Q&A on CSRD and ESRS
On 8 November, the Dutch Social and Economic Council (Sociaal-Economische Raad: SER) and Accounting Standards Board (Raad voor de Jaarverslaggeving: DASB) published Questions and Answers on the CSRD and ESRS (in Dutch and English). The purpose of the document is to provide clarity on the CSRD and the related ESRS and to support undertakings in preparing their annual sustainability report. The Q&A have no legal effect, but can be useful to help stakeholders navigate the CSRD and ESRS.

EP approves European Single Access Point regarding access to financial services, capital markets and sustainability information
On 9 November, the EP approved three proposals for the establishment of a European Single Access Point (ESAP). These include: (i) the proposal for a regulation establishing an ESAP providing centralised access to publicly available information relevant to financial services, capital markets and sustainability; (ii) the proposal amending certain directives as regards the establishment and functioning of the ESAP; and (iii) the proposal amending certain regulations as regards the establishment and functioning of the ESAP. The adopted proposals are part of the package of regulatory proposals published earlier by the EC to improve the ability of companies to raise capital across the EU and to ensure that Europeans can get the best return on their savings and investments.

AFM submits position paper to SFDR consultation: towards more meaningful and consumer-friendly sustainability disclosures
On 2 November, the AFM submitted a position paper to the EC’s consultation of the SFDR framework. The AFM’s proposals aim to make the SFDR framework more meaningful for investors and to facilitate the reorientation of capital towards sustainable investments. Key proposals are: (i) removal of the current Article 8 and Article 9 qualifications; (ii) minimum adverse impact disclosures for all financial products, (ii) three easy-to-understand sustainable product labels, with both quality and disclosure requirements attached to each of these labels, (iii) reduced disclosure for products that do not meet any of the sustainability labels. In addition, the AFM suggests alignment of client advice rules under MiFID and IDD to match legislative changes to the SFDR. This should enable intermediaries and investors to effectively use SFDR disclosures to meet their clients’ sustainability preferences.

ESMA common enforcement priorities for 2023 annual financial reports
On 25 October, the ESMA published its annual public statement on the European common enforcement priorities for the 2023 financial reports of issuers admitted to trading on European (EEA) regulated markets. Together with national enforcers, in its enforcement on IFRS financial statements a priority is to focus on climate-related matters and some specific macroeconomic matters. In non-financial statements, enforcement priorities are: disclosures under Article 8 Taxonomy Regulation; disclosures of climate-related targets, actions and progress; and scope 3 emissions.

ESMA report: ‘The heat is on: disclosure of climate-related matters in financial statements’
On 25 October, ESMA published a report on the disclosure of climate-related matters in financial statements, which aims to assist and enhance the ability of issuers to provide more robust disclosures and create more consistency in the way climate-related matters are accounted for. The report focuses on climate-related disclosures under IFRS in the 2022 annual financial statements of European non-financial corporate issuers. ESMA expects issuers (including their management, supervisory boards and audit committees) and auditors to consider the illustrative examples in the report when deciding how to assess and disclose the degree to which climate-related matters play a role in the preparation and audit of IFRS financial statements.

Two Taxonomy FAQs on reporting requirements and technical screening formally adopted
On 20 October, the EC published two Frequently Asked Questions (FAQs) on the interpretation and implementation of certain provisions of the Taxonomy Regulation. This is the formal adoption of the draft FAQs that were published in December 2022. The first FAQ is addressed at non-financial undertakings that will have to start reporting their Taxonomy Key Performance Indicators (KPIs) as of 1 January 2023, and aims to provide those undertakings with further interpretative and implementation guidance. The second FAQ relates to the technical screening criteria for Taxonomy-aligned economic activities. It provides answers on respectively horizontal questions, sector-specific questions, and questions relating to recurring DNSH-criteria. 

CSRD: EC proposes to postpone the adoption date for sector-specific ESRS with two years
On 17 October, the EC proposed to postpone the deadline for the adoption of the sector-specific and 'Article 40b' (i.e., standards applicable to large third country groups) European Sustainability Reporting Standards (ESRS) by two years. This is relevant for companies in scope of the CSRD, including listed SMEs, who are required to report on sustainability. The postponement will allow these companies to focus on the implementation of the first set of ESRS adopted on 31 July 2023. It will also allow EFRAG to develop efficient sector specific ESRS, limiting the regulatory burden to the minimum necessary. The EC believes that reducing the regulatory burden is essential to maintain competitiveness of the EU, without undermining policy objectives. See also the draft list of data points published by the EFRAG on 25 October.

PSF launches consultation on new economic activities under the Taxonomy Regulation
On 17 October, the Platform on Sustainable Finance (PSF) has launched an ongoing consultation on the economic activities in scope of the Taxonomy Regulation. Stakeholders can suggest the addition of new economic activities to the Taxonomy Regulation’s technical screening criteria, or the revision of existing technical screening criteria. Proposals submitted before 15 December 2023 will be taken into account in the PSF’s recommendations to the EC in early 2024.

TCFD 2023 Status Report: more work needed on climate-related financial disclosures
On 12 October, the Task Force on Climate-related Financial Disclosures (TCFD) has published its 2023 Status Report. The report states that while TCFD-aligned reporting continues to increase, only 4% of corporations disclose in line with all 11 TCFD-recommended disclosures. The report also describes international developments on sustainability reporting and climate-related risk management, providing several case studies. This marks the last progress report published by the TCFD, as the ISSB will take over monitoring TCFD progress as of next year. The TCFD recommendations have been incorporated into the ESRS.

FSB 2023 progress report on climate-related disclosures
On 12 October, the Financial Stability Board (FSB) published its annual progress report on climate-related disclosures. From a global perspective, the report highlights progress made by the International Sustainability Standards Board (ISSB), in particular the publication of the IFRS S1 and IFRS S2 disclosure standards, as well as progress in the area of assurance. The FSB welcomes the publication of the ISSB standards, which will serve as a global framework for sustainability disclosures, and will work with other relevant bodies to promote the timely and widespread use of the standards. The report also outlines progress made by jurisdictions in promoting climate-related disclosures. All FSB jurisdictions either currently have requirements, guidance, or expectations in respect of climate-related disclosures in place, or have taken steps (e.g. proposals) to do so.

2023 FSB annual report: promoting global financial stability
On 11 October, the Financial Stability Board (FSB) published its annual report, describing its work to assess and address current and emerging vulnerabilities in the global financial system. The FSB highlights the publication of sustainability disclosure standards by the ISSB to address the financial risks posed by climate change. In addition, the FSB reports on its progress on (i) the development of global open access repositories, (ii) the assessment of climate-related vulnerabilities; (iii) the integration of climate-related risks into risk management and prudential frameworks; and (iv) the review of the incorporation of climate-related objectives into financial institutions’ compensation frameworks, with a view to identifying common challenges and sharing practices to effectively align compensation with prudent risk-taking.

ESMA study: do issuers benefit from an ESG pricing effect?
On 6 October, ESMA published an article on the European sustainable debt market, analysing the existence of an ESG pricing effect (or 'Greenium') across different types of sustainable-labelled debt instruments. The empirical results confirm that the standard drivers of bond prices and yields – i.e. credit, maturity and liquidity risk – and the explanatory power of the models are encouraging, but do not confirm the systematic existence of a Greenium for the investigated sustainable bond categories. Nevertheless, ESMA finds the results encouraging from a financial stability perspective, as price differences between sustainable and conventional debt instruments seem to stem from the same fundamental risk factors, such as the issuer’s creditworthiness, and not solely from a bond’s ESG status.

EP adopts EU Green Bonds Regulation
On 5 October, the European Parliament has adopted the proposal for a Regulation on European Green Bonds (EuGBs). The adopted text requires 100% of the proceeds of an EuGB to be invested in (a portfolio of) certain EU Taxonomy-aligned assets, or in capital or operating expenditure for which a Taxonomy transition plan is in place. Under certain conditions, 15% of the proceeds of an EuGB may be allocated to economic activities that are Taxonomy-aligned but do not (yet) align with the technical screening criteria. The regulation contains mandatory disclosure templates for EuGBs and voluntary disclosure templates for bonds marketed as environmentally sustainable, and sustainability-linked bonds. Lastly, the Regulation sets out rules on external review, organisation and governance, and supervision.

AFM updates guidelines on sustainability claims
On 4 October, the Dutch Authority for Financial Markets (AFM) published an updated version of its Guidelines on Sustainability Claims for financial institutions and pension providers (Leidraad duurzaamheidsclaims). The updated guidelines, which were consulted on earlier this year, apply to voluntary communications, as well as to mandatory disclosures insofar as applicable legislation does not prescribe a certain design. The guidelines require a sustainability claim to be (1) accurate, representative and up-to-date; (2) specific and substantiated; and (3) understandable, appropriate, and easy to find. Practical examples are provided for each requirement.

ECB adopts position in favour of introducing an ESG Rating Regulation
On 4 October, the ECB published an own-initiative opinion welcoming the proposed ESG Rating Regulation. The Regulation introduces a common regulatory approach to enhance the adequacy, integrity, transparency, responsibility, good governance, and independence of ESG rating activities. The ECB suggests an amendment to the section of the proposed Regulation stating that it does not apply to (certain) ESG ratings issued by central banks. The ECB considers that this section may unintentionally result in a narrow scope, and recommends drafting the exemption in a similar way to the exemption granted to ESG ratings issued by the EU or Member States' public authorities.

ESMA study: ESG language on the rise in the EU fund industry
On 2 October, the ESMA published an article exploring the use of ESG-related language in the names and documentation of EU investment funds. To carry out this study, ESMA has inter alia applied natural language processing techniques to examine more than 100,000 fund documents. The study shows that the share of EU UCITS investment funds with ESG-related words in their name has increased from less than 3% in 2013 to 14% in 2023. The study also highlights that fund managers tend to use generic language (such as ‘ESG’ and ‘sustainable’) rather than more specific words, which can hinder investors in verifying whether the fund’s portfolio aligns with its name.

TNFD publishes Nature-related Financial Disclosures Recommendations
On 18 September, the Taskforce on Nature-related Financial Disclosures published the final version of its TNFD Recommendations, including a set of Additional Guidance documents. The TNFD also published sector-specific guidance for financial institutions. The TNFD Recommendations reflect the increasing attention for the interrelationships between economic activities and biodiversity, and builds upon the structure and voluntary approach of the Taskforce on Climate-related Financial Disclosures (TCFD).

Note of amendment to the proposed Dutch Act on Sustainable International Business Conduct
On 15 September, the six MPs who initiated the proposal for a Dutch Act on Responsible and Sustainable International Business Conduct (Wetsvoorstel verantwoord en duurzaam internationaal ondernemen) submitted a note of amendment. In the explanatory memorandum, they express their desire to proceed with the proposal, pending European negotiations on the CSDDD, while taking into account the concerns expressed by various stakeholders. Both documents contain important changes and clarifications to the proposal, aimed at addressing concerns about the criminalisation of certain norms of the proposal, reducing regulatory pressure, and better aligning the proposal with Dutch corporate law and the EU CSDDD proposal. Of particular note are the removal of the mandatory separate climate plan, the adjustment of the definition of a 'foreign company' and the clarification that only fines, not imprisonment can be imposed for a breach of the proposed duty of care.

EC consultation on 'SME size' criteria
On 13 September, the EC submitted for consultation a Draft Delegated Directive amending the Accounting Directive as regards the adjustment of the size criteria for micro, small, medium-sized and large undertakings or groups. Since 2013, these 'size thresholds' have remained unchanged. An increase will mean that micro, small and medium-sized enterprises will not be subject to many EU financial and sustainability reporting requirements that apply to larger companies. Adoption by the Commission adoption is planned for Q4 2023.

SFDR Level 1 consultation launched by the EC
On 2 September, as part of a review of the SFDR framework, the EC published two targeted public consultation papers aimed at identifying potential shortcomings in the Sustainable Finance Disclosure Regulation (SFDR) framework. The EC appears to be considering potentially substantial adjustments in areas such as legal certainty, user-friendliness and the regulation’s ability to combat greenwashing. Given that the SFDR is often treated in practice as a labelling system, the EC is considering an ESG categorisation system for financial products instead of the disclosure regime that the SFDR intended to introduce. In addition, the EC is exploring whether entity-level disclosure is appropriate in addition to product-level disclosure. The consultation comprises two documents: one for financial market participants, investors, NGOs, relevant public authorities and national regulators, and a second document targeted at a broader group of stakeholders with a more general knowledge of the SFDR. Both consultations are open until 15 December 2023.

ESMA publishes updated implementation timeline for Sustainable finance package
On 3 August, ESMA published an update of the Sustainable finance implementation timeline. The timeline runs from 2021 to 2028 and covers the key implementation dates for the SFDR, Taxonomy Regulation, CSRD, IDD, UCITS, AIFMD and for MiFID.

Final European Sustainability Reporting Standards (ESRS) are published
On 31 July, the EC adopted the Delegated Regulation supplementing the European Accounting Directive with regard to the ESRS (as amended by the CSRD). Annex I contains the ESRS, while acronyms and a glossary of terms are given in Annex II. The EU website includes a page with a timeline of the initiative, stakeholder's feedback and other language versions and a Q&A on the new Delegated Regulation. The Delegated Regulation and the ESRS will apply from 1 January 2024. Our blog on this topic briefly explains the differences between the consultation version and this final version, and provides a full comparison of the two documents.

Draft bill published for (partial) CSRD implementation in Dutch law
On 17 July, a consultation on the draft bill for the partial implementation of the CSRD in Dutch law was published. The draft bill implements the CSRD provisions on the audit of sustainability reporting and the provision on sustainability reporting by listed companies. The consultation period runs until 10 September 2023. The remaining provisions of the CSRD will be implemented through an order in council (AMvB).

ACM publishes study results on consumer perception of sustainability claims
The ACM commissioned a study to find out how consumers perceive true and false sustainability claims made by companies and published the results on 31 July. Overall, some differences were found in the perception of sustainability claims because of consumer background characteristics such as age, education or gender. According to the ACM study, it appears that concrete claims tend to be found more understandable and credible. Nuanced claims tend to be found more credible than absolute claims.

ESG Data and Rating code of conduct consultation (ISRG and ICMA)
The ESG Data and Ratings Working group (DRWG) is seeking feedback on the Draft Voluntary Code of Conduct for ESG Ratings and Data Product Providers. The code introduces clear standards for ESG ratings and data products providers and clarifies how such providers can interact with wider market participants. The consultation period runs from 5 July to 5 October 2023 and the final code is due to be published at the end of 2023.

Dutch government welcomes EU proposal to regulate ESG ratings
On 14 July, the Dutch government published an announcement confirming the importance of ESG ratings for capital allocation towards sustainable investments and the need to regulate ESG rating agencies. The negotiations in Europe are likely to involve (i) the choice for a regulation (verordening), (ii) the lack of methodical requirements and (iii) the exclusion of (raw) ESG data providers.

ESMA – ESG supervision of asset managers: SFDR, Taxonomy, AIFMD, UCITS Regulation
On 6 July, ESMA launched a common Supervisory Action (CSA) with National Competent Authorities (NCAs) on sustainability-related disclosure and sustainability risk integration. The CSA aims to examine supervised asset managers' compliance with relevant provisions of the SFDR, the Taxonomy Regulation and relevant implementing measures thereto, including the UCITS and AIFMD implementing acts on the integration of sustainability risks. Until Q3 2024, NCAs will undertake their supervisory activities and share knowledge and experiences through ESMA to foster supervisory convergence.

EU Taxonomy briefing: Environmental Delegated Act and amending Climate Delegated Act
On 5 July, the European Parliament published a briefing with an overview of the delegated acts supplementing the Taxonomy Regulation. It contains the Environmental Delegated Act, establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to the sustainable use and protection of water and marine resources, to the transition to a circular economy, to pollution prevention and control, or to the protection and restoration of biodiversity and ecosystems and the Disclosure Delegated Act as regards specific public disclosures for those economic activities. It further contains the Climate Delegated Act as regards the establishment of the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation.

ISSB issues first sustainability-related disclosure standards
On 26 June, the International Sustainability Standards Board (ISSB) issued its first two sustainability standards. The standards will create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects, covering the general disclosure requirements (IFRS S1) and climate-related disclosure requirements (IFRS S2). Both standards are effective for annual reporting periods beginning on or after 1 January 2024, with earlier application permitted when they are applied together.

ICMA updates Climate Transition Finance Handbook and sustainability principles and publishes additional related documents
On 22 June, the International Capital Market Association (ICMA) issued an update of its Climate Transition Finance Handbook (CTFH) and an updated version of its Sustainability-Linked Bond Principles (SLBPs). In the related press release, ICMA states that the updated CTFH integrates the progress by the market and the official sector on climate transition guidance and disclosures. ICMA concurrently provided further guidance, such as additional Q&As for green, social and sustainability bond securitisation.

EC publishes notice on Taxonomy Regulation and SFDR
On 16 June, the EC published a notice on the interpretation and implementation of certain legal provisions of the EU Taxonomy Regulation and links to the Sustainable Finance Disclosure Regulation (SFDR). It includes FAQs and addresses, amongst other things, the role of minimum safeguards in the Taxonomy Regulation, the definition of minimum safeguards under Article 18 and whether Taxonomy-aligned investments qualify as ‘sustainable investments’ under the SFDR.

Ecodesign Regulation: ENVI adopts approach  
On 15 June, the Committee on the Environment, Public Health and Food Safety (ENVI) adopted its position on revising the EU’s ecodesign framework for sustainable products. The proposal aims to establish a framework for setting ecodesign requirements for sustainable products. The committee’s report is scheduled to be adopted during the July plenary sitting of the EU Parliament and will constitute Parliament’s negotiating position with EU governments on the final shape of the legislation.

EC publishes sustainable finance package
On 13 June, the EC published a new package of measures to build on and strengthen the foundations of the EU sustainable finance framework. The package aims to ensure that this framework continues to support companies and the financial sector, while encouraging private funding of transition projects and technologies. 

EC publishes EU Taxonomy Delegated Acts
As part of the sustainable finance package, the EC published the Environmental Delegated Act (also amending the Disclosures Delegated Act). This act introduces technical screening criteria for economic activities that contribute substantially to one or more environmental objectives under the Taxonomy Regulation: (i) sustainable use and protection of water and marine resources; (ii) transition to a circular economy; (iii) pollution prevention and control; and (iv) protection and restoration of biodiversity and ecosystems. Furthermore, amendments to the Climate Delegated Act were published, establishing additional technical screening criteria for climate change mitigation and climate change adaptation for economic activities under the Taxonomy Regulation. Most of the provisions of these legislative instruments apply from 1 January 2024.

Proposed regulation on ESG rating activities
The sustainable finance package also includes a proposal for a regulation on the transparency and integrity of ESG rating activities. The general objective of this initiative is to improve the quality of ESG ratings by (i) improving transparency of ESG ratings characteristics and methodologies; and (ii) ensuring increased clarity on operations of ESG rating providers and prevention of risks of conflict of interest at ESG rating providers’ level.

EC publishes Q&A on sustainable finance package
On 13 June, the EC published questions and answers on (the new package of measures relating to) the sustainable finance framework.

EU Council agrees for industrial installations to provide better data on their environmental emissions
On 7 June, the European Council agreed to the proposal for a regulation on reporting of environmental data from industrial installations and establishing an Industrial Emissions Portal. The proposal aims to upgrade the European Pollutant Release and Transfer Register (E-PRTR). The main goal is to advance the Green Deal's zero pollution ambition by offering the public access to an integrated dataset on environmental emissions from industrial installations. The Council also amended the proposal, including postponement of the entry into force from 2025 to 2027.

ESAs' proposal for ESG disclosures for STS Securitisations
On 25 May, the European Supervisory Authorities (EBA, EIOPA and ESMA) jointly submitted draft Regulatory Technical Standards (RTS) on ESG impact disclosure for Simple, Transparent and Standardised (STS) securitisations under the Securitisation Regulation. The key proposals included in the RTS specify ESG disclosures which would apply to STS Securitisations where the underlying exposures are residential loans, auto loans and leases. The EC is expected to endorse the RTS within three months after their publication. More information on this topic is available on ESMA’s website.

European Single Access Point: a provision agreement has been reached
On 23 May, the negotiators from the Council and the European Parliament reached a provisional agreement on three proposals creating the European Single Access Point (ESAP). The ESAP will offer a single point of access to public financial and sustainability-related information about EU companies and EU investment products. The ESAP platform is expected to be available from summer 2027.

EU Pay Transparency Directive finalised
On 17 May, the EU Pay Transparency Directive (EU) 2023/970 was published in the Official Journal of the EU. Pursuant to this Directive, employers with 250 or more workers must annually report their gender pay gaps, and employers with 150-249 workers must do so every three years. The first reports will be published in 2027 and will relate to the 2026 calendar year. The threshold will then be lowered to 100 workers, beginning with reports published in 2031 relating to the 2030 calendar year. Note that member states could go further. They can set the headcount at a lower level, require more regular reporting, or include a wider category of workers. The directive must be implemented in national legislation by 7 June 2026.

Consolidated Q&A on SFDR
On 17 May, the consolidated Q&A on the EU Sustainable Finance Disclosure Regulation (SFDR) was published. This document combines responses given by the European Commission to questions requiring interpretation of Union Law and responses generated by the European Supervisory Authorities (ESAs) relating to the practical application or implementation of the SFDR.

Sustainable Finance Roadmap: ESMA’s three key priorities
In a speech at the AFME second Annual Sustainable Finance Conference on 4 May, Executive Director Natasha Cazenave outlined the supervisory priorities of ESMA's Sustainable Finance Roadmap. These are: (1) promoting transparency and tackling greenwashing; (2) capacity building, i.e., increasing the knowledge and expertise of ESMA staff and National Competent Authorities; and (3) monitoring and assessing ESG markets and risks.

SFDR interpretation – answers from the EC
On 14 April, the European Commission published (click here) the answers to the questions the ESAs jointly submitted about the interpretation of the SFDR in September 2022, including amendments to previously circulated answers (click here). The EC made clear that the SFDR does not set out minimum requirements that qualify concepts such as contribution, do no significant harm, or good governance, i.e. the key parameters of a ‘sustainable investment’. Financial market participants need to carry out their own assessment for each investment and disclose their underlying assumptions.

Consultation to review the SFDR Delegated Regulation
On 12 April, the ESAs launched jointly a consultation with the aim to review the SFDR Delegated Regulation. The most relevant topics in scope for review are (i) the proposal of some new formulas and clarifications to definitions and concepts that come with the PAI indicators, (ii) the search for an alternative to the “do not significantly harm-principle” and (iii) suggestions for a different disclosure structure in relation to pre-contractual documents, period reports and more detailed information. Furthermore, the ESAs question the use of carbon credits in the net-zero mission, as the Dutch Authority for Financial Markets did as well this April. Comments can be provided until 4 July 2023. Click here to view the proposed adjustments in more detail.

NBA whitepaper on CSRD application
On 12 April, the Netherlands Institute of Chartered Accountants (NBA) published a whitepaper on the application and impact of the Corporate Sustainability Reporting Directive (CSRD). This publication aims to help large enterprises and other organisations such as SMEs and public entities report on sustainability.

Responses on EC's call for feedback on the draft Taxonomy Delegated Acts
On 5 April, the EC issued a call for feedback on a proposed delegated regulation containing a new set of EU Taxonomy criteria for economic activities making a substantial contribution to the environmental objectives water, circular economy, pollution and biodiversity. The consultation ended on 3 May. Notable contributions include those from the EU Platform on Sustainable Finance, the Principles for Responsible Investment, Milieudefensie and the Dutch Ministry of Infrastructure and Water Management.

AFM on CSRD: “no time to lose”
On 30 March, the AFM published a report in which it explored how listed companies and audit firms are dealing with sustainability reporting. Under the CSRD, these companies will have to report on this matter in less than nine months from now. It appears that huge steps are still needed. The AFM stresses explicitly that companies have start collecting available and reliable sustainability information now. This also goes for companies that will not be covered by the CSRD until later. For more information and a chart with the timeline on the implementation of the CSRD, see here.

AFM attention points for sustainable bonds
On 30 March, the AFM published ten points of attention for prospectuses relating to the issuance of sustainable bonds while awaiting the entry into force of many of the ESG legislative initiatives such as the EU Green Bond Standard and the Listing Act. Some of these points are also relevant for equity prospectuses where such prospectuses contain sustainability claims. In our experience over the last few months, the AFM's review focuses on inclusion of (i) processes around pre- and post-issuance impact reporting (points 6, 9 and 10), (ii) further information on alignment with ESG market standards and EU Taxonomy, whereby even statements such as "best efforts basis" need to be substantiated (point 7), and (iii) explanations how issuances of sustainable bonds attribute to the issuer's sustainability goals (point 8).

EC's request for feedback on draft EU Taxonomy Environmental Delegated Act
The EC launched a feedback period for the draft Environmental Delegated Act, and on the proposed amendments to the Taxonomy Climate Delegated Act. The draft Environmental Delegated Act contains a new set of EU Taxonomy technical screening criteria for economic activities making a substantial contribution to (i) the sustainable use and protection of water and marine resources; (ii) the transition to a circular economy; (iii) pollution prevention and control; and (iv) the protection and restoration of biodiversity and ecosystems. The Taxonomy Climate Delegated Act will be amended to cover additional economic activities (such as the transport sector) and related technical screening criteria.