EC presented a package of measures as a follow-up to its action plan on financing sustainable growth. The package includes proposals aimed at establishing a unified EU classification system of sustainable economic activities (taxonomy); improving disclosure requirements on how institutional investors integrate environmental, social, and governance (ESG) factors in their risk processes; and creating a new category of benchmarks that will help investors compare the carbon footprint of their investments. EC also proposed to amend certain Delegated Acts under the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive (IDD). The comment period for the proposal for a regulation amending Regulation (EU) 2016/1011 on low carbon benchmarks and positive carbon impact benchmarks consultations closes on July 20, 2018 while comment period on some other proposals closes on June 21, 2018.
The following are the key features of the proposed measures:
- The proposal for a unified EU classification system sets harmonized criteria for determining whether an economic activity is environmentally-sustainable. Step by step, EC will identify activities that qualify as "sustainable," taking into account the existing market practices and initiatives and drawing on the advice of a technical expert group that is being set up.
- The proposed regulation related to investor duties and disclosures will introduce consistency and clarity on how institutional investors, such as asset managers, insurance companies, pension funds, or investment advisers should integrate environmental, social, and governance (ESG) factors in their investment decision-making process. Exact requirements will be further specified through Delegated Acts, which EC will adopt at a later stage.
- The proposed rules on low-carbon benchmarks will create a new category of benchmarks, comprising the low-carbon benchmark or "decarbonized" version of standard indices and the positive-carbon impact benchmarks. This new market standard should reflect companies' carbon footprint and give investors greater information on an investment portfolio's carbon footprint.
- EC launched a consultation to assess how best to include ESG considerations into the advice that investment firms and insurance distributors offer to individual clients. The aim is to amend Delegated Acts under MiFID II and IDD. When assessing if an investment product meets their clients' needs, firms should also consider the sustainability preferences of each client, according to the proposed rules.
Comment Due Date: July 20, 2018
Keywords: Europe, EU, Banking, Securities, Sustainable Finance, Taxonomy, Disclosure Requirements, EC
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