On 6 July 2021, the European Commission adopted a package of measures intended to help improve the flow of money towards financing the transition to a sustainable economy.
Guidance on certain aspects of the EU Sustainable Finance Disclosure Regulation (EU SFDR) was also expected, but has not been published as part of this package, and is still awaited.
The package includes the following:
- Delegated Act supplementing Article 8 of the EU Taxonomy Regulation
- Strategy for financing the transition to a sustainable economy
- Proposal for an EU Green Bond Standard and proposed Regulation
- Other items in the pipeline
1. Delegated Act supplementing Article 8 of the EU Taxonomy Regulation
The European Commission has adopted the delegated act supplementing Article 8 of the EU Taxonomy Regulation. There are 11 annexes. The delegated act specifies the content, methodology and presentation of information to be disclosed by financial and non-financial undertakings (including large EU asset managers) within the scope of the Non-Financial Reporting Directive relating to how and to what extent their activities are associated with environmentally sustainable economic activities as defined under the EU Taxonomy Regulation – i.e. the proportion of environmentally sustainable activities that form part of their business, investment or lending activities. The final delegated act includes some changes to the draft that was published earlier in the year, following a consultation. One important change for asset managers who are required to report under Article 8 of the EU Taxonomy Regulation (rather than at product level under EU SFDR) is that full taxonomy reporting will not be required until 2024, in recognition of the fact that they will rely on underlying companies for the data they need, and that will not be available until 2023.
2. Strategy for financing the transition to a sustainable economy
The Commission's new sustainable finance strategy aims to support the financing of the transition to a sustainable economy. It proposes action in the areas of transition finance; inclusiveness; resilience and contribution of the financial system; and global ambition.
The main document is a Communication entitled "Strategy for financing the transition to a sustainable economy", with an Annex, setting out the specific goals and actions. There are other supporting documents, including a factsheet and a staff working document.
As regards measures under the EU Taxonomy Regulation and the possible timing of these:
- The Commission will consider proposing legislation to support the financing of certain economic activities that contribute to a reduction in GHG emissions.
- The Commission will consider options to extend the EU Taxonomy Regulation to recognise transitional economic activities.
- The Commission will adopt a further delegated act covering sustainable activities which were not included in the first EU Taxonomy Delegated Act:
- This will cover "nuclear energy activities, subject to and consistent with the specific expert review process that the Commission set out for this purpose".
- It will also cover natural gas and related technologies as transitional activities in as far as these activities "fall within the limits of Article 10(2) of the EU Taxonomy".
- It will be adopted "as soon as possible after the end of the specific review process in Summer 2021".
- By the end of 2021 the Commission will publish a report "on the provisions required for a Social Taxonomy".
- The Commission will adopt a further delegated act to cover the remaining four environmental objectives in the first half of 2022.
As regards EU SFDR:
- The Commission will consider labels for ESG benchmarks and the introduction of minimum sustainable criteria for financial products that promote environmental or social characteristics.
- Prior to December 2022, the Commission will engage with the ESAs to review the EU SFDR RTSs and seek to "clarify indicators for both climate and environment related principal adverse impacts and principal adverse impacts in the field of social and employee matters, respect for human rights, anti-corruption and anti-bribery matters".
- By 31 December 2022, the Commission will review the minimum standards for both EU Climate Transition Benchmarks.
3. Proposal for an EU Green Bond Standard and proposed Regulation
The package also includes the Commission's proposal for the European Green Bond Standard (EUGBS). Once the proposed Regulation on European Green Bonds (and its Annexes) has been adopted, it will set a voluntary, "gold" standard for issuers seeking to use green bonds to raise finance on capital markets. The aim will be for issuers to have the means of demonstrating that they are financing EU-taxonomy aligned green projects and, at the same time, to reduce the risk of greenwashing by giving investors the ability to compare sustainable investments against a reliable standard.
4. Other items in the pipeline
The European Commission also mentioned a number of other proposals in the pipeline:
- A sustainable corporate governance initiative in 2021. Considerable work has already been undertaken on this and it is expected to include mandatory sustainability due diligence for EU companies.
- Amendments to CRD/CRR to ensure that ESG factors are integrated into the risk management system of banks (for instance, in the Supervisory Review and Evaluation Process (SREP)) together with a new requirement for banks to conduct internal stress tests of their resilience to climate change risks.
- Amendments to the Solvency II Directive to integrate sustainability risk into the prudential framework for insurers.