Sustainable Finance Insights Series - 8 | Amendments to the Disclosure Regulation (2019/2088)

On 22 June 2020, the European Union published the Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment, and amending Regulation 2019/2088 (the “Disclosure Regulation”) on sustainability-related disclosures in the financial services sector (the “Taxonomy Regulation”).

The Taxonomy Regulation (i) supplements the disclosure requirements in the rules on pre-contractual and periodical transparency laid down in the Disclosure Regulation and (ii) expands the ESAs’ missions[1]. For more details on the Disclosure Regulation we refer to the BSP Sustainable Finance Insight Series number 1. For more details on the Taxonomy Regulation, we refer to BSP Sustainable Finance Insight Series number 7.

AMENDMENT OF ARTICLE 8 OF THE DISCLOSURE REGULATION

Insertion of the principle “do not significant harm”

Article 8 of the  Disclosure Regulation is amended  to provide that financial market participants when making available a product referred to in Article 6 of the Taxonomy Regulation (ie promoting environmental or social characteristics or a combination of those characteristics), shall include in the pre-contractual disclosure document the following statement, “ the “do not significant harm” principle applies only to those investments underlying the financial product that take into account the EU criteria for environmentally sustainable economic activities. The investments underlying the remaining portion of this financial product do not take into account the EU criteria for environmentally sustainable economic activities.”

Such  statement shall be included to comply with the obligation of transparency of the integration of sustainability risks in both, pre-contractual disclosures and periodic reports, on the promotion of environmental or social characteristics and of sustainable investments.

AMENDMENT OF ARTICLE 9 OF THE DISCLOSURE REGULATION

Additional information to be disclosed

In addition to the information already laid down in the Disclosure Regulation, financial market participants shall now disclose the following information:

• the information on the environmental objective or environmental objectives to which the investment underlying the financial product contributes (i.e. 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 restoration of biodiversity and ecosystems);
• a description of how and to what extent the investments underlying the financial product are invested in environmentally sustainable economic activity as defined under article 3 of the Taxonomy Regulation and  shall specify the proportion of investments in environmentally sustainable economic activities selected for the financial product, including details on the proportions of enabling and transitional activities, as a percentage of all investments selected for the financial product.

This information shall be disclosed:

• where a financial product has sustainable investment as its objective and an index has been designated as a reference benchmark;
• where a financial product has sustainable investment as its objective and no index has been designated as a reference benchmark;
• where a financial product has a reduction in carbon emissions as its objective;

This information shall be included to comply with the obligation of transparency of the integration of sustainability risks in both, pre‐contractual disclosures and periodic reports on sustainable investments.

APPLICATION

Disclosure obligations applicable to financial market participants set forth above of the Disclosure Regulation shall apply:

• by 1 January 2022, in respect of the following environmental objectives:
  • climate change mitigation;
  • climate change adaptation;
• by 1 January 2023, in respect of the following environmental objectives:
  • sustainable use and protection of water and marine resources;
  • transition to a circular economy;
  • pollution prevention and control;
  • protection and restoration of biodiversity and ecosystems.

EXPANSION OF THE ESAS’ MISSIONS

The ESAs shall, through the Joint Committee, develop draft regulatory technical standards to specify:

• by 30 December 2020, the details of the presentation and content of the information in relation to the principle of ‘do not significantly harm’ referred to in the “sustainable investment” definition laid down in the Disclosure Regulation;
• by 1 June 2021, the details of the presentation and content of the information of articles 9 (4a) and 8 (2a) of the Disclosure Regulation in respect of the following environmental objectives:
  • climate change mitigation;
  • climate change adaptation;
• by 1 June 2022, the details of the presentation and content of the information of articles 9(4a) and 8 (2a) in respect of the following environmental objectives:
  • sustainable use and protection of water and marine resources;
  • transition to a circular economy;
  • pollution prevention and control;
  • protection and restoration of biodiversity and ecosystems.