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
    News

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004