With so many developments across the globe in the area of sustainability-related disclosures, we have looked back throughout May 2022 and summarised the key points coming out of the EU, UK and US.
ESAs further questions to the EC and responses
In December 2021 (although published in May 2022), the ESAs submitted to the EU Commission (“EC”) further queries relating to the interpretation of the SFDR and the Taxonomy Regulation (“TR”). A summary of the key questions for FMPs, along with the EC’s responses (published by ESMA on 25 May 2022), is set out below.
EC mandate to ESAs to propose amendments to the RTS
The EC has issued two (2) letters to the ESAs requesting that they propose amendments to the:
- the RTS in relation to PAI indicators by extending the lists of indicators and refining the content of all the indicators and their definitions, applicable methodologies, metrics and presentation. This is an unhelpful request given that the RTS is not yet in force and any amendments could ultimately require FMPs to make changes (hopefully not fundamental ones) to their approach to compliance, increasing what is already a burdensome requirement. However, the EC has confirmed that this request will not affect the implementation of the current RTS from 1 January 2023 and so any changes will not be imminent. The ESAs need to submit a new draft RTS by April 2023;
- information that should be provided in pre-contractual documents, on websites, and in periodic reports about the exposure of financial products to investments in fossil gas and nuclear energy activities. The amendments shall ensure that the disclosures provide for full transparency about such investments for compliance with the Complementary Climate Delegated Regulation. Perhaps this request for enhanced disclosures should not be surprising given that the inclusion of gas and nuclear activities is controversial and several member states strongly objected.
FCA SDR, investment labels and Taxonomy
- SDR and investment labels: While the FCA had anticipated publishing its draft rules on sustainability disclosure requirements (“SDR”) and investment product labels in Q2 of this year, the May 2022 Regulatory Initiatives Grid (“Grid”) provides that the FCA will publish a consultation paper with draft rules by July 2022. The Grid confirms that formal engagement is planned between October and December. As such, there still appears to be some way to go before we have a final set of rules and are able to determine the impact that the FCA’s SDR will have on managers who are currently complying with the SFDR.
- UK green taxonomy: Similar to the EU’s approach to developing technical screening criteria, the UK is going to publish the Technical Screening Criteria (“TSC”) in tranches, with the first two TSCs relating to Climate Change Adaptation and Climate Change Mitigation to be finalised by the end of 2022. The remaining four TSCs are to be finalised by end-2023 – although this date is under revision.
SEC proposals
- In order to help prevent “greenwashing”, the SEC (i.e. the U.S. regulator) has published two new proposals aimed at investment funds that take into account ESG factors as follows:
- Names Rule – if a fund’s name suggests a focus on ESG factors, it would be required to invest at least 80% of its holdings in such assets. A fund that merely considers ESG factors alongside, but not more than, other inputs would not be permitted to use ESG or related terms in its name.
- Disclosures – funds that consider ESG in their investment processes would be required to disclose how they measure progress toward that goal. Additionally, funds for which ESG investing is a significant or primary consideration would be required to fill out a standardised table as well as additional information about the greenhouse-gas emissions produced by the companies or issuers in their portfolios.
Next steps
We will continue to monitor for further developments in this ever-evolving area.
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