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.
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
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.
Previous ArticleMAS Amends Rules on Residential Property Loans by Banks
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.