EU Finalizes Rule on Framework to Facilitate Sustainable Investment
Regulation 2020/852 on the establishment of a framework to facilitate sustainable investment has been published in the Official Journal of European Union. Regulation 2020/852 establishes the criteria for determining whether an economic activity qualifies as environmentally sustainable for the purpose of establishing the degree to which an investment is environmentally sustainable. Regulation 2020/852 also amends Regulation 2019/2088 on sustainability‐related disclosures in the financial services sector and enters into force on the twentieth day following that of its publication in the Official Journal of the European Union. In addition, EC has launched a call for applications for members of the Platform on Sustainable Finance. The platform will be an advisory body composed of experts from the private and public sectors. The deadline for applications is July 16, 2020.
The new legislation on sustainable investments lays down six environmental objectives and allows economic activity to be labelled as environmentally sustainable if it contributes to at least one of the objectives without significantly harming any of the others. The objectives are:
- Climate change mitigation and adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy, including waste prevention and increasing the uptake of secondary raw materials
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
- Boosting green investments
According to EC, the criteria for climate change mitigation and adaptation will be adopted by the end of this year and the criteria on the other four environmental objectives (sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems) will be adopted by the end of next year. To ensure consistency between Regulation 2020/852 and Regulation 2019/2088, Regulation 2019/2088 has been amended to mandate the ESAs to jointly develop regulatory technical standards to specify details of the content and presentation of the information in relation to the principle of "do no significant harm." These regulatory technical standards should be consistent with the content, methodologies, and presentation of the sustainability indicators in relation to adverse impacts, as referred to in Regulation 2019/2088. Regulation 2019/2088 has further been amended to mandate ESAs to develop, through the Joint Committee, draft regulatory technical standards to supplement the rules on transparency of the promotion of environmental characteristics and of environmentally sustainable investments in pre-contractual disclosures and in periodic reports.
Regulation 2020/852 highlights that, by December 31, 2021, EC shall publish a report describing the provisions that would be required to extend the scope of Regulation 2020/852 beyond environmentally sustainable economic activities, to cover other sustainability objectives, such as social objectives, and to cover the economic activities that do not have a significant impact on environmental sustainability and that harm environmental sustainability. The report will also review the appropriateness of specific disclosure requirements related to transitional and enabling activities. By July 13, 2022, EC shall assess the effectiveness of advisory procedures for the development of the technical screening criteria established under Regulation 2020/852. Also, by July 13, 2022, and subsequently every three years thereafter, EC shall publish a report on the application of Regulation 2020/852.
Related Links
Effective Date: July 12, 2020
Keywords: Europe, EU, Banking, Insurance, Securities, Climate Change Risk, ESG, Regulation 2019/2088, Disclosures, Regulation 2020/852, Sustainable Finance, Taxonomy, European Parliament, European Council
Featured Experts
Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
