March 07, 2019

EC welcomed the political agreement reached by the European Parliament and EU member states on new rules on disclosure requirements related to sustainable investments and sustainability risks. The new regulation sets out how financial market participants and financial advisers must integrate environmental, social, or governance (ESG) risks and opportunities in their processes, as part of their duty to act in the best interest of clients. The regulation requires the disclosure of adverse impact on ESG matters, such as in assets that pollute water or devastate bio-diversity, to ensure the sustainability of investments.

The regulation also sets uniform rules on how those financial market participants should inform investors about their compliance with the integration of ESG risks and opportunities. The availability of information is crucial to the integration of risks related to the impact of ESG events on the value of investments. The new regulation is built around three main pillars:

  • Elimination of greenwashing (unsubstantiated or misleading claims about sustainability characteristics and benefits of an investment product) and an increase of market awareness on sustainability matters
  • Regulatory neutralityThe rules introduce a disclosure toolbox to be applied in the same manner by different financial market operators. ESAs, and in particular the Joint Committee of the Authorities, will ensure further convergence and harmonization of disclosures in all the sectors concerned.
  • Level playing field—The regulation covers investment funds; insurance-based investment products (life insurance products with investment components available as individual retail life policies as well as group life policies); private and occupational pensions and individual portfolio management; and both insurance and investment advice.

First proposed by EC in May 2018 as part of the Sustainable Finance Action Plan and the Capital Markets Union, these rules are an integral part of the EU efforts, under the sustainable development agenda and the carbon neutrality agenda of EU, to connect finance with needs of the real economy. They also support the 2012 United Nations' Sustainable Development Goals and the 2016 Paris Climate Agreement targets.EC is working with the co-legislators with the objective to reach an agreement on the remaining part of the package: EC proposal to establish a unified EU classification system (or taxonomy) of sustainable economic activities.

 

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Keywords: Europe, EU, Banking, Insurance, Securities, Sustainable Finance, ESG, Disclosures, ESAS, EC

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