Featured Product

    ESMA Group Offers Advice on Proposals on Sustainability Disclosures

    May 17, 2021

    ESMA published advice from the Securities and Markets Stakeholders Group (or the Stakeholder Group) to the ESAs on the proposed regulatory technical standards on the content and presentation of information in context of the regulation on sustainability‐related disclosures in the financial services sector (Regulation 2019/2088). By introducing the Taxonomy Regulation’s Environmentally Sustainable Activities into the Sustainable Finance Disclosure Regulation, another piece of the puzzle is completed. Although the Group welcomes this, it remains worried about the complexity of the proposals, to a large extent resulting from piecemeal implementation of different sets of level 1 legislation, and offers suggestions for simplification. The Group also supports the ESA approach to amend the existing draft regulatory technical standards, instead of drafting a new set of regulatory standards.

    The Stakeholders Group believes that the synergy between different pieces of legislation—particularly the Non-Financial Reporting Directive (NFRD), the Taxonomy Regulation, and the Sustainable Finance Disclosure Regulation (SFDR)—and also adjacent legislation such as the Shareholders Rights Directive II and the scheduled reviews of MiFID and UCITS/AIFMD can contribute significantly to enhancing sustainability in the economy. However, neither the timings nor the concepts of these different pieces of legislation are fully aligned with one another. To reduce complexity, within the confines of Level 1 legislation, the Group suggested some subtle wording change, avoidance of duplication in questions, and clarifications with regard to the indicators. The following are the key highlights of the advice from the Stakeholder Group:

    • Although the Group supports the ESA approach to amend the existing draft regulatory technical standards, this raises the question of the implementation date of requirements provided by these amended regulatory technical standards. The implementation date should consider the timeline of green asset ratio reporting under Article 8 of the Taxonomy regulation (which is planned in first quarter of 2022), as it would allow market participants to use reliable data from issuers. This will help ensure that clients will benefit from correct and consistent information.
    • The Group believes that derivatives can serve many purposes, including ESG purposes. In such contexts, the Key Performance Indicator (KPI) can be extended to include derivatives, provided that it is adequately disclosed how they serve ESG purposes. On the issue of the KPI indicator, the Group is worried that the KPI tells only part of the story. Therefore, some instruments cannot be included (example sovereign bonds): social objectives are not yet included. The Group is also concerned that in the perception of the investor, the KPI gets undue prominence. For this reason, the Group supports an approach where the denominator excludes instruments that are not in scope of the Taxonomy Regulation. However, this should be complemented by another indicator that indicates the potential coverage of the Taxonomy Regulation.
    • The Group believes that assessment by a third party would be useful. However, due to data problems and methodological challenges, it is reasonable to assume that in the beginning, financial companies will be on a learning curve. Thus, such assessment should be of an advisory, rather than a compliance nature at first. The Group also believes that the responsibility of the data on the investee companies rests with the investee companies themselves. This is something that should be provided for in the Corporate Sustainability Reporting Directive. It is likely that not only companies, but also the national competent authorities will be on a learning curve. For this reason, the Group proposes that the implementation of this legislation should be a prime focus of regulatory convergence.
    • The Group also suggests that questions by financial institutions be primarily answered through ESMA Q&A, rather than bilaterally with national competent authorities.

     

    Related Link: ESMA Advice (PDF)

     

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

    Featured Experts
    Related Articles
    News

    FINMA Approves Merger of Credit Suisse and UBS

    The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.

    March 21, 2023 WebPage Regulatory News
    News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News
    News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News
    News

    APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.

    March 07, 2023 WebPage Regulatory News
    News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News
    News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News
    News

    MFSA Sets Out Supervisory Priorities, Issues Reporting Updates

    The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023

    March 02, 2023 WebPage Regulatory News
    News

    German Regulators Issue Multiple Reporting Updates for Banks

    Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022

    March 02, 2023 WebPage Regulatory News
    News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News
    News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8806