Featured Product

    ESMA Group Advises ESAs on Proposed ESG Disclosure Standards

    September 14, 2020

    The Securities and Markets Stakeholder Group (SMSG) of ESMA issued advice related to the ESA consultation on environmental, social, and governance (ESG) disclosure standards. The draft regulatory technical standards on content, methodology, and presentation of ESG disclosures were developed under the Sustainable Finance Disclosure Regulation or SFDR. SMSG believes that the synergy between different pieces of legislation can contribute significantly to enhancing sustainability in the economy. However, neither the timing nor the concepts of these different pieces of legislation are fully synchronized or aligned with one another.

    To optimally exploit this synergy, enhance effectiveness of the different pieces of legislation, and maintain simplicity, SMSG believes in the usefulness of an iterative process among these different pieces of legislation, probably for at least two to three years. This could be organized to culminate with the scheduled review of the SFDR at the end of 2022. However, to allow sufficient degree of freedom for the iterative process, SMSG suggests a phased approach with regard to the draft technical standards. With respect to the use of descriptive indicators provided in the draft technical standards, SMSG contests the use of an extended set of indicators because there will be a problem of data availability for a substantial period to come. SMSG also notes that the proposed set requires fine-tuning, which could possibly come by as a result of the iterative process. However, there is a risk that introducing these indicators in a one-off "Big Bang" seals the possibility for later adjustments.

    An alternative could, for example, be to start with a much smaller core set of reference indicators to be used whenever relevant, following a comply or explain mode, while maintaining the policy indicators. Over time, this set could possibly expand. SMSG values that ESAs try to insert indicators for governance into the draft technical standards; however, it regrets that Level 1 legislation has not given them an explicit mandate to develop governance indicators. SMSG also pointed out that the definitions of particular indicators provided in the draft technical standards may have precise names, but they need to be accompanied with detailed instructions about what data need to be used to calculate these indicators. Without these instructions companies may provide financial institutions with data as seems appropriate to the companies and that would result in incomparability of data from different member states. On a conceptual level, SMSG questions the usefulness of an extended set of descriptive indicators at entity level, as the most relevant level for the investor is the product level.

    SMSG believes that the relevance of individual indicators may vary depending on the type of product. However, if one allows a degree of flexibility, one should also demand transparency and disclosure regarding this flexibility. For this reason, SMSG has suggested that the field “description of policies to identify and prioritize principal adverse sustainability impacts," should disclose which criteria are used to select and prioritize indicators for adverse impact at product level and the process (governance) through which this is done. SMSG has requested ESAs and EC to provide more clarity regarding Article 8 and Article 9 products. Also, SMSG suggests ESAs should reinforce link between the Taxonomy Regulation and the SFDR with regard to sustainable investment. With regard to the use of adverse impact indicators at product level, SMSG notes that many of the concerns at the entity level are also relevant at the product level. Considering these issues, SMSG calls on ESAs to consider alternative approaches, keeping the following considerations in mind:

    • Timing problems with regard to the availability of data
    • Problems of materiality (relevance of indicators differs across products) and proportionality
    • The need to allow an iterative process rather than seal the indicators through a “Big Bang” at too early a stage
    • The need to consider qualitative considerations in the assessment of adverse impact rather than merely quantitative ones


    Related Link: SMSG Advice (PDF)


    Keywords: Europe, EU, Banking, Insurance, Securities, Disclosures, ESG, Climate Change Risk, Regulatory Technical Standards, Sustainable Finance, SMSG, SFDR, ESMA, ESAs

    Related Articles

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News

    HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets

    The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.

    January 12, 2022 WebPage Regulatory News

    FCA Registers Securitization Repositories; PRA Issues 2022 Priorities

    The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.

    January 12, 2022 WebPage Regulatory News

    EC Regulation Sets Out Methods for Measuring K-Factors Under IFR

    The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.

    January 11, 2022 WebPage Regulatory News

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.

    January 10, 2022 WebPage Regulatory News

    ESAs Publish List of Financial Conglomerates for 2021

    The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.

    January 07, 2022 WebPage Regulatory News

    APRA Licenses Two More Banks, Reduces Committed Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) updated the list of authorized deposit-taking institutions, granting license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.

    January 07, 2022 WebPage Regulatory News

    EU Issues SII Corrigendum; EIOPA Assesses SII Reporting Exemptions

    EU published, in the Official Journal of the European Union, a corrigendum to the Delegated Regulation 2015/35, which supplements Solvency II Directive (2009/138/EC).

    January 06, 2022 WebPage Regulatory News

    EBA Opines on Impact of De-Risking and Associated AML/CFT Challenges

    The European Banking Authority (EBA) published an Opinion on the scale and impact of de-risking in European Union and the steps that competent authorities should take to tackle unwarranted de-risking.

    January 05, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7860