EUROPE: EC Publishes Final Climate Change Taxonomy Delegated Act

Tuesday April 27 2021

The European Commission has published its final version of the delegated act containing the technical screening criteria for climate change adaptation and mitigation under the Taxonomy Regulation.

This forms part of a wider package of other sustainable finance documents published:

• Text of the proposal for a Corporate Sustainability Reporting Directive (CSRD) – this is a proposal to amend the Non-Financial Reporting Directive (NFRD)
• Delegated acts amending various sectoral directives which clarify the obligations for financial firms when assessing sustainability risks and preferences:
  • UCITS: Commission Delegated Directive amending Directive 2010/43/EU as regards the sustainability risks and sustainability factors to be taken into account for Undertakings for Collective Investment in Transferable Securities (UCITS);
  • AIFMD: Commission Delegated Regulation amending Delegated Regulation (EU) No 231/2013 as regards the sustainability risks and sustainability factors to be taken into account by Alternative Investment Fund Managers;
  • IDD: Commission Delegated Regulation amending Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359 as regards the integration of sustainability factors, risks and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct of business and investment advice for insurance-based investment products
  • MiFID II: Commission Delegated Directive amending Delegated Directive (EU) 2017/593 as regards the integration of sustainability factors into the product governance obligations;
  • MiFID II: Commission Delegated Regulation amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms;
  • Solvency II: Commission Delegated Regulation amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings.

The package is comprised of:

• The EU Taxonomy Climate Delegated Act aims to support sustainable investment by making it clearer which economic activities most contribute to meeting the EU’s environmental objectives. The College of Commissioners today reached a political agreement on the text. The Delegated Act will be formally adopted at the end of May once translations are available in all EU languages. A Communication, also adopted by the College today, sets out the Commission’s approach in more detail.
• A proposal for a Corporate Sustainability Reporting Directive (CSRD). This proposal aims to improve the flow of sustainability information in the corporate world. It will make sustainability reporting by companies more consistent, so that financial firms, investors and the broader public can use comparable and reliable sustainability information.
• Finally, six amending Delegated Acts on fiduciary duties, investment and insurance advice will ensure that financial firms, e.g. advisers, asset managers or insurers, include sustainability in their procedures and their investment advice to clients.

The European Green Deal is Europe’s growth strategy that aims to improve the well-being and health of citizens, make Europe climate-neutral by 2050 and protect, conserve and enhance the EU’s natural capital and biodiversity.

As part of that effort, companies need a comprehensive sustainability framework to change their business models accordingly. To ensure the transition in finance and prevent greenwashing, all elements of today’s package will enhance the reliability and comparability of sustainability information. It will put the European financial sector at the heart of a sustainable and inclusive economic recovery from the COVID-19 pandemic and the longer-term sustainable economic development of Europe.

EU Taxonomy Climate Delegated Act

The EU Taxonomy is a robust, science-based transparency tool for companies and investors. It creates a common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment. It will also introduce disclosure obligations on companies and financial market participants.

These six amendments encourage the financial system to support businesses on the path towards sustainability, as well as supporting existing sustainable businesses. They will also strengthen the EU’s fight against greenwashing.

• On investment and insurance advice: when an adviser assesses a client’s suitability for an investment, they now need to discuss the client’s sustainability preferences.
• On fiduciary duties: today’s amendments clarify the obligations of a financial firm when assessing its sustainability risks, such as the impact of floods on the value of investments.
• On investment and insurance product oversight and governance: manufacturers of financial products and financial advisers will need to consider sustainability factors when designing their financial products.

Click on the link for further information.