ESMA issued a no-action letter to promote coordinated action by national competent authorities regarding the new environmental, social and governance (ESG) disclosure requirements for benchmark administrators, under the Benchmarks Regulation. According to the letter, national competent authorities should not prioritize supervisory or enforcement action against administrators regarding these new requirements until the delegated acts apply. ESMA also issued an opinion to EC on the need for prompt adoption of the relevant delegated acts. The new requirements are due to apply on April 30, 2020 and require benchmark administrators to include details of how ESG factors are reflected in their methodology documents and benchmark statements.
The new ESG-related disclosure requirements oblige benchmark administrators, by April 30, to include:
- in their methodology document, an explanation of how the key elements of the methodology reflect ESG factors for each benchmark or family of benchmarks
- in their benchmark statement, an explanation of how ESG factors are reflected in each benchmark or family of benchmarks provided and published.
These disclosure requirements that have been set out in the EU Regulation 2016/1011 aim to increase the comparability of benchmarks with regard to ESG factors and are key for users of benchmarks to make well-informed choices. The associated delegated acts are expected to ensure that these objectives may be achieved by setting out the minimum content of the ESG factors to be disclosed as well as the standard formats for the presentation of that information.
EC, on April 08, 2020, had published the draft delegated acts, the consultation period for which ends on May 06, 2020. Following their adoption, the delegated acts will be subject to a scrutiny period by the European Parliament and by the Council before they enter into force. In its opinion to EC, ESMA states that it considers it necessary for national competent authorities to address the absence of the delegated acts through consistent risk-based supervisory and enforcement practices. ESMA explained that if the date of application of the new disclosure requirements had been aligned with the date of application of the delegated acts, significant issues would not have arisen. ESMA asserted that the delegated acts should be adopted by EC without delay, to ensure the objectives of these requirements are achieved, to provide administrators with clarity on how to apply these requirements, and to provide competent authorities with clarity on how to supervise compliance with these requirements.
Keywords: Europe, EU, Banking, Securities, ESG, Benchmarks Regulation, Opinion, National Competent Authorities, Delegated Act, Disclosures, Benchmark Administrator, Climate Change Risk, ESMA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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