On 23 April 2020, the three European Supervisory Authorities (EBA, EIOPA and ESM, together the ESAs) issued a consultation paper seeking input on proposed environmental, social and governance (ESG) disclosure standards for financial market participants, advisers and products, to enable investors to refocus their investments on products which respect the EU environmental objectives.
The issue of the consultation paper comes shortly after the Council of the European Union (the Council) adopted a unified EU classification system to encourage private investment in sustainable growth and contribution to a climate-neutral economy (the Taxonomy), on 15 April 2020.
The Taxonomy sets out six EU environmental objectives:
- Climate change mitigation
- Climate change adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restauration of biodiversity and ecosystems
The Taxonomy further includes the principle of “do no significant harm” (the DNSH Principle), which aims to achieve a balance in respect of the six objectives, making sure that economic activities making a substantial contribution to climate change mitigation or adaptation do not cause significant harm to all remaining environmental objectives.
After having been empowered to develop regulatory technical standards (RTS) under the EU Regulation on sustainability-related disclosures in the financial services sector on the content, methodology and presentation of ESG disclosures both at entity level and at product level, the ESAs have now also been mandated to submit RTS in relation to the DNSH Principle.
At entity level, the RTS will determine what information must be disclosed on the website of the entity, while at the product level, the RTS will focus on pre-contractual and periodic documentation. In addition, the RTS will define how disclosures will be made in relation to compliance with the DNSH Principle.
Feedback has been welcomed until 1 September 2020, whereafter the ESAs will submit the draft RTS to the European Commission by 30 December 2020.