CSSF Guides on SFDR Implementation, Reviews Issuer Climate Disclosures
CSSF published a communication guiding investment fund managers of undertakings for collective investment in transferable securities (UCITS) and alternative investment funds to comply with the requirements of the EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (also known as SFDR). The communication highlights that investment fund managers will need to comply with the high-level, principle-based requirements laid down in the SFDR by March 10, 2021. Additionally, CSSF published results of its assessment of the status of climate-related information reported by issuers. The review not only revealed some improvements in disclosures but also highlighted significant gaps and scope for improvements.
The review of reported climate-related information compares the climate-related disclosures of issuers with the recommendations in the updated EU guidance on climate-related disclosures. The review revealed that key improvements relate to the information provided on policies and due diligence processes, disclosures on risk management of climate-related risks, and key performance indicators. However, the review also highlighted that significant gaps remain and that additional improvements in the quality and comparability of climate-related disclosures are urgently required to meet investor and other stakeholder needs. The following are the key highlights of the review:
- Only a small and unsatisfactory percentage of issuers address the questions in relation to climate-change beyond the basic requirements of the NFI Directive (Directive 2014/95/EU).
- While the importance of climate-change effects is relatively well highlighted in the description of business models (for those disclosing climate-related information), there is lack of information about concrete actions beyond commitments made or proposals to significantly reduce global warming.
- There is an omission with respect to the insights on governance aspects, including the board’s oversight of climate-related risks and opportunities and the management’s role in assessing and managing these risks and opportunities, along with the information provided on policies and due diligence processes. Therefore, the review identified a clear need for improvement in future non-financial reports, as it allows stakeholders to understand the robustness of the company’s approach to climate-related issues.
- There is a lack of disclosures on risk management in relation to climate-related risks (identification/assessment/mitigation) in the short, medium, and long term for a large majority of issuers. There is also a significant need for disclosures in relation to the key climate-related risks, distinguishing physical and transition risks.
CSSF recommends issuers willing to achieve a better non-financial reporting to proactively monitor the Taxonomy Regulation developments. CSSF urges issuers to review the updated EU guidance that provides practical recommendations on how to better report the impact that their activities have on the climate as well as the impact of climate change on their business. Issuers are expected to exercise their own judgment when deciding which disclosures to use. In 2021, CSSF will conduct a follow-up of this assessment and of the European priorities, to continue providing issuers with recommendations and good practices.
Related Links
Keywords: Europe, Luxembourg, Banking, Securities, Climate Change Risk, ESG, Governance, SFDR, Sustainability-Related Disclosures, Sustainable Finance, CSSF
Featured Experts
Michael Denton, PhD, PE
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.
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous Article
IOSCO Responds to IFRS Consultation on Sustainability ReportingRelated Articles
ECB Finds Banks Unprepared for Pillar 3 Climate Risk Disclosures
The European Central Bank (ECB) published results of the 2022 supervisory assessment of climate-related and environmental risk disclosures among significant institutions (103) and a selected number of less significant institutions (28).
NCUA Assesses Credit Union Exposure to Climate-Related Physical Risks
The National Credit Union Administration (NCUA) released a Research Note that examines the exposure of credit unions to climate-related physical risks. In a related development
EBA Issues Multiple Regulatory and Reporting Updates for Banks
The European Banking Authority (EBA) is seeking comments, until July 31, 2023, on the draft Guidelines on the proposed common approach to the resubmission of historical data under the EBA reporting framework.
EC Adopts Regulation on Own Funds, Issues Other Updates
The European Commission adopted Delegated Regulations on own funds and eligible liabilities, on requirements for the internal methodology under the internal default risk model
CDP Platform to Report Plastic-Related Impact, Issues Other Updates
The Carbon Disclosure Project (CDP) announced that its global environmental disclosure platform has enabled reporting on plastic-related impact for nearly 7,000 companies worldwide
IASB to Enhance Reporting of Climate Risks, Proposes IFRS 9 Amendments
The International Accounting Standards Board (IASB) updated its work plan to enhance the reporting of climate-related risks in the financial statements,
BIS Addresses Data Gaps and Macro-Prudential Policy for Climate Risks
The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) published a brief paper that examines challenges associated with the use of macro-prudential policies to address climate-related financial risks.
FCA Sets Out Business Plan, Launches TechSprint on Greenwashing
The Financial Conduct Authority (FCA) published its business plan for 2023-24. The plan sets out details of the work planned for the next 12 months to achieve better outcomes for consumers and markets
UK Committee Sets Out Recommendations for Next Phase of Open Banking
The Joint Regulatory Oversight Committee (JROC), comprising the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) as co-chairs and the HM Treasury and the Competition and Markets Authority (CMA) as members
ECB Publishes Multiple Regulatory Updates for Banking Institutions
The European Central Bank (ECB) published the results of the 2022 climate risk stress test of the Eurosystem balance sheet,
