PIMFA
European Union
- The EU taxonomy
The European Union (EU) taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. The EU taxonomy would provide companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable. In this way, it should create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments where they are most needed.
- Taxonomy Regulation and delegated acts
The Taxonomy Regulation entered into force on 12 July 2020. It establishes the basis for the EU taxonomy by setting out 4 overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable. The Taxonomy Regulation establishes six environmental objectives:
- Climate change mitigation
- Climate change adaptation
- The sustainable use and protection of water and marine resources
- The transition to a circular economy
- Pollution prevention and control
- The protection and restoration of biodiversity and ecosystems
The Taxonomy Regulation empowers the Commission to adopt delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in the directive. The Commission launched an educational and user-friendly website – the EU taxonomy navigator – offering a series of online tools to help users better understand what the EU taxonomy is in a simple and practical manner, which activities/sectors and technical screening criteria are covered, and how the reporting obligations work in practice.
- Regulation on sustainability-related disclosure in the financial services sector
The disclosures regulation applies from 10 March 2021. It lays down sustainability disclosure obligations for manufacturers of financial products and financial advisers toward end-investors. It does so in relation to the integration of sustainability risks by financial market participants and financial advisers in all investment processes and for financial products that pursue the objective of sustainable investment.
In addition, the co-legislators added disclosure obligations as regards adverse impacts on sustainability matters at entity and financial products levels, i.e. whether financial market participants and financial advisers consider negative externalities on environment and social justice of the investment decisions/advice and, if so, how this is reflected at the product level.
- Regulatory Technical Standards
The European Commission adopted on 6 April 2022 technical standards to be used by financial market participants when disclosing sustainability-related information under the Sustainable Finance Disclosures Regulation (SFDR). This Delegated Regulation specifies the exact content, methodology and presentation of the information to be disclosed, thereby improving its quality and comparability. Under these rules, financial market participants will provide detailed information about how they tackle and reduce any possible negative impacts that their investments may have on the environment and society in general.
The Delegated Regulation applies from 1 January 2023.
On 31 October 2022, the European Commission adopted amendments to this Delegated Regulation to require financial market participants to disclose the extent to which their portfolios are exposed to gas and nuclear-related activities that comply with the Taxonomy, as set out in the Complementary Climate Delegated Act (CDA). By increasing transparency, these amendments will allow investors to make informed investment decisions.
These amendments were published in the Official Journal in February 2023 and started to apply on 20 February 2023.
