EUROPE: Taxonomy-related Sustainability Disclosures

Monday March 22 2021

On 15^th March 2021, the three European Supervisory Authorities (ESAs) published a Joint Consultation Paper Taxonomy-related sustainability disclosures and draft regulatory technical standards with regard to the content and presentation of sustainability disclosures pursuant to Article 8(4), 9(6) and 11(5) of Regulation (EU) 2019/2088.

Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation) was published in the Official Journal on 22 June 2020.

The Taxonomy Regulation (TR) empowers the ESAs, by amending the Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial service sector (SFDR), to develop further RTS on “taxonomy-related product disclosures”.

The deadlines for the taxonomy-related product disclosures RTS range from 1 June 2021 to 1 June 2022. Article 8, 9, 11 RTS on pre-contractual and periodic product disclosures for environmental taxonomy products are due to be delivered to the European Commission by 1 June 2021 for the “climate change mitigation” and “climate change adaptation” environmental objectives and 1 June 2022 for the “sustainable use and protection of water and marine resources”, “transition to a circular economy”, “pollution prevention and control” and “protection and restoration of biodiversity and ecosystems” environmental objectives.

General background

Article 25 of the Taxonomy Regulation (TR) amends SFDR, adding new RTS empowerments for the JC to develop additional disclosure obligations for products making use of the environmental taxonomy:

• Article 8(4) SFDR: To develop additional disclosure rules on the pre-contractual information for Article 8 products using the environmental taxonomy (so-called “light green” products – i.e. that promote environmental characteristics), divided into technical standards for climate objectives and other environmental objectives.
• Article 9(6) SFDR: To develop additional disclosure rules on the pre-contractual information for Article 9 products (so-called “dark green” products – i.e. that invest in an “economic activity that contributes to an environmental objective”) making use of the environmental taxonomy, divided into technical standards for climate objectives and other environmental objectives.
• Article 11(5) SFDR: To develop additional disclosure rules on the periodic information for both Article 8 and Article 9 products making use of the environmental taxonomy, divided into technical standards for climate objectives and other environmental objectives.

The disclosure requirements added in Articles 8(2a), 9(4a), and 11(1)(c)-(d) SFDR refer to information that has to be published according to Articles 5 and 6 TR. The ESAs issued on 25 February 2021 a supervisory statement accompanying the SFDR RTS which contains a table of application dates for the various obligations in SFDR.

Article 5 TR sets out the additional disclosures required by Article 9 SFDR products making sustainable investments according to Article 2(17) SFDR in economic activities contributing to environmental objectives:

• Information on the environmental objective or objectiveslisted in Article 9 TR to which the investment underlying the financial product contributes; and
• A description of how and to what extent the investments underlying the financial product are in economic activities that qualify as environmentally sustainable under Article 3 TR.

Article 6 TR applies Article 5 TR disclosures to Article 8 SFDR products that make sustainable investments.

Article 3 TR sets out the key criteria for environmentally sustainable economic activities, where economic activities must:

• Contribute substantially to one or more environmental objectives;
• (ii) Not significantly harm any of the environmental objectives;
• Comply with the minimum safeguards in Article 18 TR; and
• Comply with all the technical screening criteria under Articles 10(3) (substantial contribution to climate change mitigation), 11(3) (substantial contribution to climate change adaptation), 12(2) (substantial contribution to sustainable use of and protection of water and marine resources), 13(2) (substantial contribution to the transition to a circular economy), 14(2) (substantial contribution to pollution prevention and control) or 15(2) (substantial contribution to the protection and restoration of biodiversity and ecosystems) TR.

The draft screening criteria for these objectives, to be adopted in a Delegated Act by the Commission, have been published by the Technical Expert Group (TEG) on sustainable finance in their final report technical annex in March 2020.

The European Commission published a draft Delegated Act for consultation on 20 November 2020, with the final text expected to be adopted later in 2021.

Click on the link above for further information.