ESMA Consults on Disclosure Obligations Under Taxonomy Regulation
ESMA published a consultation paper containing its draft advice to EC on Article 8 of the Taxonomy Regulation. Article 8 of the Taxonomy Regulation obliges undertakings covered by the Non-Financial Reporting Directive to publish information on how and to what extent their activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation. The consultation specifies the content, methodology, and presentation of the key performance indicators (KPIs) that non-financial undertakings and asset managers are required to disclose. The consultation closes on December 04, 2020, with ESMA expected to deliver its final advice to EC by February 28, 2021.
Article 8(2) of the Taxonomy Regulation requires non-financial undertakings to use three KPIs: the proportion of their turnover, their capital, and operating expenditure related to environmentally sustainable activities. Article 8(4) requires EC to adopt a delegated act to supplement these obligations by specifying the content, presentation, and methodology of the information to be disclosed by both financial and non-financial undertakings subject to the Non-Financial Reporting Directive. EC has to adopt the delegated act by June 01, 2021. In September 2020, ESMA received a call for advice from EC, requesting input on the certain aspects of the delegated act, which EC shall adopt. The proposals of ESMA aim to ensure a consistent application of the disclosure obligations required under the Taxonomy Regulation by non-financial undertakings and asset managers that fall within scope of the Non-Financial Reporting Directive. The key draft proposals for consultation address the following aspects:
- On non-financial undertakings, the advice covers the content of the three KPIs, namely the proportion of turnover, and the capital and operating expenditure related to environmentally sustainable activities which must be disclosed and set out specific considerations related to the methodology for their preparation and presentation.
- On asset managers, the advice proposes a KPI calculation model based on eligible investments; this comes together with advice on how the KPI should be calculated and presented to allow uniform disclosure on how the activities are directed at funding environmentally sustainable economic activities.
Annex I to the consultation paper contains the EC call for advice to ESAs while Annex II contains the consultation questions for stakeholders which are presented throughout the consultation paper. Annex III sets out the proposal for a standardized table for non-financial undertakings to use for the presentation of the three mandatory KPIs. Annex IV sets out proposal for a standardized table for asset managers to use for the presentation of the KPI that ESMA is suggesting requiring from them. Annex V presents an analysis providing top-down estimates for the three KPIs included in the call for advice, for the EU economy as a whole and by Statistical Classification of Economic Activities in the European Community (NACE) macro sector, based on a methodology developed by the EC Joint Research Centre report on the EU Taxonomy. To ensure that the draft advice covers key considerations in the market while meeting the timeline for the delivery of this advice by the end of February 2021, ESMA has conducted a targeted outreach with various stakeholders to rapidly advance in the development of the draft proposals that are included in this consultation paper. In accordance with the call for advice of EC, ESMA also closely cooperated with the other two ESAs to ensure consistent and coherent recommendations from the three authorities.
Related Links
Comment Due Date: December 04, 2020
Keywords: Europe, EU, Banking, Insurance, Securities, Taxonomy Regulation, NFRD, Disclosures, ESG, Sustainable Finance, Climate Change Risk, ESAs, EC, ESMA
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.
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
