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    ESAs Consult on Taxonomy-Related Sustainability Disclosures

    March 17, 2021

    ESAs proposed the regulatory technical standards on disclosures of financial products investing in economic activities that contribute to an environmental investment objective. The proposed standards also address how and to what extent activities funded by the product are taxonomy-aligned. The Taxonomy Regulation (Regulation 2020/852) empowers ESAs, by amending the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088), to develop the regulatory technical standards on “taxonomy-related product disclosures.” The comment period for this proposal ends on May 12, 2021.

    To fulfil the taxonomy-related product empowerments, ESAs have agreed to amend the soon to be finalized SFDR regulatory technical standards, instead of creating a new ruleset, to minimize duplication and complexity in this area. ESAs’ aim is to have the regulatory technical standards on disclosures rules function as a “single rulebook” for sustainability disclosures at Level 2 for both the original empowerments in SFDR and the additional ones added by Taxonomy Regulation. ESAs also agreed to create one set of regulatory technical standards for all the environmental taxonomy-related disclosures (covering the six objectives of Article 9 of Taxonomy Regulation), with two different deadlines for application, depending on which sets of environmental objectives are relevant for the product. The application dates would follow the dates set in Article 27 of the Taxonomy Regulation, but all the rules would be provided in one text. The draft regulatory technical standards of ESAs provide for the content and presentation of additional information to the SFDR product disclosures where the product makes sustainable investments contributing to environmental objectives.

    This consultation proposes a set of amending Articles for products making sustainable investments, more specifically investing in activities with environmental objectives in compliance with the Taxonomy Regulation. The amendments are targeted at Article 9 of SFDR products but are also relevant for Article 8 of SFDR products that intend to make sustainable investments in environmental objectives in compliance with the Taxonomy Regulation. Furthermore, as the SFDR regulatory technical standards included templates for pre-contractual and periodic information, the taxonomy-related product regulator standards also provide amended templates in which taxonomy-specific elements are required, as set out in amended Annexes II, III, IV, and V of these draft amending regulatory technical standards. ESAs have included, for illustrative purposes, a draft set of consolidated SFDR regulatory technical standards as an annex to this consultation paper, to show what the changed regulatory standards would look like, as amended by the changes proposed by ESAs. Overall, the proposal of ESAs on how and to what extent activities funded by the product are taxonomy-aligned consists of two elements:

    • A graphical representation of the taxonomy-alignment of investments of the financial product and a key performance indicator calculation for that alignment
    • A statement that the activities funded by the product that qualify as environmentally sustainable are compliant with the detailed criteria of the Taxonomy Regulation

    The approach taken to amend the SFDR regulatory standards meant that ESAs were not able to start the work on these amending regulatory standards until the SFDR regulatory technical standards were in near final form at start of 2021. This has delayed the launch of this consultation paper. Considering the deadline for delivery of the regulatory technical standards (June 01, 2021), ESAs have provided for an eight-week consultation period, instead of the usual three months. Nonetheless, it is likely that ESAs will issue a final report with the draft regulatory technical standards by late June or early July 2021.


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    Comment Due Date: May 12, 2021

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

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