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    ESAs Propose New Rules for Taxonomy-Related Product Disclosures

    October 25, 2021

    The European Supervisory Authorities (ESAs) have delivered to the European Commission (EC) the final report on the draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR), as amended by the regulation on the establishment of a framework to facilitate sustainable investment. The disclosures relate to financial products that make sustainable investments contributing to environmental objectives. EC will scrutinize the draft regulatory technical standards and decide whether to endorse them within three months of their publication. EC informed the European Parliament and Council that it intends to incorporate all the technical standards, meaning both the original ones submitted to EC in February 2021 as well as the ones covered in this final report, in one instrument.

    The draft regulatory technical standards contain templates for pre-contractual and periodic product disclosures. ESAs agreed to amend the existing finalized draft regulatory technical standards and their accompanying templates to minimize duplication and complexity, thus creating a single ruleset. The ESAs’ finalized draft regulatory technical standards, which were published on February 04, 2021, have already established the content, methodology, and presentation of other disclosures to be made under the SFDR in accordance with the ESAs’ empowerments under Articles 2a, 4(6) and (7), 8(3), 9(5), 10(2), and 11(4) of SFDR. The ESAs’ aim is to have the technical standards on disclosures rules function as a “single rulebook” for sustainability disclosures for both the original empowerments in the SFDR and the additional ones added by taxonomy regulation. The draft standards aim to provide disclosures to end-investors regarding the investments of financial products in environmentally sustainable economic activities, providing them with comparable information to make informed investment choices; another aim is to establish a single rulebook for sustainability disclosures under the SFDR and the Taxonomy Regulation. The report contains following proposals for products under Articles 5 and 6 of the Taxonomy Regulation:

    • inclusion of pre-contractual and periodic disclosures that identify the environmental objectives to which the product contributes and show how, and to what extent, the product’s investments are aligned with the EU Taxonomy
    • for measuring how, and to what extent, activities funded by the product are aligned with the EU taxonomy; the proposals consist of two elements—two graphs showing the taxonomy-alignment of investments of the financial product based on a specified methodology that calculates that alignment and an assurance provided by an auditor or a review by a third party that the economic activities funded by the product that qualify as environmentally sustainable are compliant with the detailed criteria of the Taxonomy Regulation.

    The proposal for pre-contractual and periodic disclosures involves inclusion of annexes with amendments to the mandatory templates for financial products that promote environmental and/or social characteristics or a sustainable investment objective as defined in the SFDR, so that they include additional disclosures for Article 5 and Article 6 products under the Taxonomy Regulation. Regarding the issue of treatment of sovereign bonds in the representation of the taxonomy-alignment of investments, ESAs decided to require the disclosure of the taxonomy-alignment of investments in two ways: one by including sovereign exposures and the other by excluding sovereign exposures from the calculation. To protect investors from risk of greenwashing, the draft regulatory technical standards contain a graph that includes all investments of the financial product in the calculation. As there is no appropriate methodology to assess the taxonomy-alignment of sovereign bonds, ESAs added a second graph showing the taxonomy-alignment of the financial product where all sovereign exposures are excluded from the calculation.


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    Keywords: Europe, EU, Banking, Regulatory Technical Standards, SFDR, Sustainable Finance, Taxonomy Regulation, Disclosures, Single Rulebook, ESAs

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