On 24 May 2018, the European Commission presented a package of measures designed to engage capital markets in the implementation of the 2015 Paris climate accord. The legislative measures, previously announced in the Commission’s Action Plan on Financing Sustainable Growth issued in March, include three regulations, as well as amendments to existing rules under the Markets in Financial Instruments Directive (“MiFID II”) and the Insurance Distribution Directive (“IDD”). The key elements of the new rules encompass a framework to establish a harmonized classification system (“taxonomy”), new sustainability requirements for investors’ fiduciary duty, disclosures and advice to clients, as well as a new category of a low carbon benchmark. The Commission welcomes feedback on the three regulations set out below until 20 July, 2018.
The Commission proposes to establish the conditions and the general frameworkto create a unified EU taxonomy identifying environmentally sustainable economic activities. To be deemed as environmentally sustainable, an activity would have to contribute to the six environmental objectives laid out in the proposal and comply with the technical screening criteria, which will be established by the Commission at a later stage on the basis of advice by a dedicated technical expert group. Notably, the process will be gradual, while the first set of criteria is envisaged to be adopted by 2019 year-end. The framework to be developed under the regulation could eventually serve as the basis for standards and labels for sustainable financial products.
Under the Commission’s proposal for a regulation on investors’ disclosure, fund firms will be required, among other things, to publish written policies on their websites on the integration of sustainability risks in investment decision-making processes. The extent of the expected impact of sustainability risks on the returns of a financial product, as well as sustainability considerations in the remuneration policies will also have to be disclosed. Through increased transparency, the proposal aims to tackle “greenwashing” practices, by which firms deceptively promote their products as environmentally friendly.
The Commission’s amendments to MiFID II and IDD delegated rules would oblige investment firms and insurance distributors to actively question their customers about their sustainability requirements and preferences. Interested stakeholders can provide their comments on the proposed amendments until 21 June 2018.
Furthermore, the Commission is proposing to amend the benchmarks regulation, to create a new category of benchmarks comprising low-carbon and positive carbon impact benchmarks, which will provide investors with better information on the carbon footprint of their investments. The Commission leaves flexibility for benchmark providers, who will be free to provide a full spectrum of low-carbon benchmarks with a different degree of ambition with respect to meeting climate-related objectives.
As announced in the Action Plan on Financing Sustainable Growth, the Commission intends to roll out all the proposed actions by the second quarter of 2019.