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    EU Finalizes Rule on Framework to Facilitate Sustainable Investment

    June 22, 2020

    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.


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    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

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