Given the scale and challenge of the risks posed by climate change and other sustainability matters, action and increased effort from all actors, including the financial services sector, are urgently required. Therefore, the European Commission presented the EU Green Deal at the end of 2019. The goal of the EU Green Deal is to make the economy of the EU more sustainable. The European Commission wants to do this by turning environmental and social challenges into opportunities and making the transition just and inclusive for all. Crucial in attaining this goal will be the financing of this transition.
In this light, the European Commission put forward an action plan for sustainable finance prior to launching the EU Green Deal. The aim of the action plan is to create a stable, sustainable, and transparent financial system. It seeks to establish a reorientation of capital flows towards sustainable investment, promote the inclusion of sustainability in risk management, and foster transparency and long-termism into financial and economic thinking. The EU Taxonomy is one of the pieces of legislation that will serve as a cornerstone for this action plan. This year, yet another highly important piece of legislation is coming into force: the EU Sustainable Finance Disclosure Regulation (SFDR).
The EU SFDR applies to financial market participants ranging from asset managers to financial advisors and will be implemented on March 10th, 2021. This piece of legislation aims to increase transparency in how sustainability risks and opportunities are integrated into the investment decisions and recommendations of financial market players. Even though this implementation date is approaching quickly, much remains unclear concerning the use of the EU SFDR. In this blog, Sustainalize will provide an overview of the key dates and what exactly is required by the EU SFDR.
Below, an overview is given of the different levels and topics of disclosure of the SFDR. First, FMPs need to disclose information on a firm-level about their sustainability policies. Second, FMPs will need to disclose information on a product-level about their financial products. On both a firm- and a product-level, FMPs need to report on their Principal Adverse Impacts (PAI). PAI consists of a list of sustainability factors (e.g., GHG emissions, waste, biodiversity, human rights) that firms need to start taking into consideration in their investment policies and decisions. It consists of mandatory and voluntary indicators, both related to environmental and social topics. These indicators are compiled in a template called the Regulatory Technical Standard (RTS), which purpose it is to provide further detail and guidance to ensure that firms take a similar approach in their sustainability disclosure.
Please note: due to the constant developments of legislation, the information in this blog may be out of date.
Consultant, Sustainalize
Former colleague, Sustainalize
The initial plan was to implement both the general principles and the specific principles of the SFDR on March 10th, 2021. However, the final version of the specific disclosures (the so-called Regulatory Technical Standards or RTS), is delayed and expected to be finalized no sooner than January 2022 (editor’s note: draft RTS was finalised 2nd Februari 2021). This does not affect the implementation date of the EU SFDR.
FMPs must disclose the appropriate information from the date they start considering the principle adverse impact (PAI) of their investments. FMPs can start taking this into consideration between March 10th and June 30th, 2021. After this year, FMPs are expected to report the mandatory information from January 1st – December 31st, each year.
Companies have a responsibility to respect human rights, and to do so, they are required to exercise human rights with due diligence. Multiple pieces of legislation are currently being implemented for making human rights due diligence a mandatory process.
With the Corporate Sustainability Reporting Directive (CSRD) published in the European Union’s Official Journal, we’d like to dive into the most recent changes, and how it affects businesses. Since publishing our last blog on CSRD updates, two major changes have taken place.
The EU Taxonomy differentiates between eligible and aligned activities. In this blog, we provide you with an overview of updated requirements, estimated timelines for your organization, and how we at Sustainalize/ERM can help guide you through the complexity of reporting in accordance with the EU Taxonomy – specifically focused on alignment.
On September 28th 2022 the Science Based Targets initiative (SBTi) launched the long-awaited addition to its expanding sector guidance portfolio. The Forest, Land and Agriculture (FLAG) guidance was made publicly available to be used by industry leaders of land-intensive sectors. We have elaborated on the guidance.
This year, companies had to report on the EU Taxonomy for the first time, covering two of the mandatory environmental objectives climate change mitigation and adaptation. Sustainalize has analyzed the disclosures of approximately 35 AEX/AMX companies, investigating the responsivity of this new legislation.
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