The Disclosure Regulation defines “sustainability factors” as “environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters”. Readers should take legal advice before applying it to specific issues or transactions. A virtual library of regularly posted insights and legal updates based on your selected preferences. The EU Regulation on sustainability-related disclosures in the financial services sector (the Disclosure Regulation) came into force at the end of December 2019 and will apply 15 months later. such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance. The Disclosure Regulation, part of the EU Sustainable Action Plan, provides a central schedule of obligations for environmental, social and governance ("ESG") related disclosures in the EU financial services sector. Other elements of the package include proposed amendments to MiFID II, [3] AIFMD and UCITS [4] that will require asset managers to integrate ESG considerations into their organisational and operational controls, and risk management processes. Scroll through these slides to access the personalised features of your Dashboard. For financial products that have sustainable investment as their objective, a description will need to include the "overall sustainability‐related impact of the financial product by means of relevant sustainability indicators". The pre-investment disclosure obligations (see below) require AIFMs to include information on ESG considerations in the disclosures mandated under Article 23(1) of AIFMD. Further publications are to be expected. It also introduces amendments to the Disclosure Regulation, adding additional requirements for ESG products with certain characteristics as provided for under the Disclosure Regulation (explained further below) so as to allow investors to identify the share of investments funding environmentally sustainable economic activities. contributes to an environmental objective as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy; or. However, 2021 has for some time been pencilled into the regulatory calendar as a year of change for ESG. In 2019, new proposals on ESG and climate risk disclosure were introduced in the House of Representatives, and the SEC opened the door to expanded disclosure … information on how those characteristics are met (assuming that the investee companies follow good governance practices); where an index has been designated as a reference benchmark, information on whether and how the index is consistent with those characteristics; information as to where than index can be found. Firms that have opted not to consider adverse impact of investment decisions must provide clear reasons for not doing so. Its aim is to enhance transparency regarding integration of environmental, social and governance matters (“ESG”) into investment decisions and recommendations. Anna Maleva-Otto is a partner and Joshua Wright is an associate at Schulte Roth & Zabel LLP. The European Union’s new Sustainable Finance Disclosure Regulation (SFDR) – also known as the Disclosure Regulation – comes into effect in March 2021. The regulation on sustainability-related disclosures in the financial services sector (“SFDR”) introduces wide transparency requirements on fund managers who will need to demonstrate how proficient they are in embedding ESG factors in their processes. These rules will be adopted by the European Commission and become a “Level 2 Regulation”. AIFMs and UCITS management companies and investment firms carrying out portfolio management) and financial advisers (firms authorised under MiFID to give investment advice and credit institutions) in relation to financial products (e.g. 2. In relation to financial products promoting environmental or social characteristics, the following will be need provided: Where a financial product has sustainable investment as its objective and an index has been designated as a reference benchmark, information to be included will consist of: Where no index has been designated, pre-contractual disclosures will include an explanation of how the sustainable investment objective is to be attained. Firms with more than 500 employees have no option but to publish a statement on their website in relation to adverse sustainability impacts. Such firms will need to publish, on their website, information on due diligence policies with respect to those impacts, taking due account of their size, the nature and scale of their activities and the types of financial products they make available. Following the categorisation of the product, the relevant disclosures, summarised below, may be required. (go back), 4ESMA Technical Advice on Sustainable Finance, available here. Access all of the content that you have previously selected to bookmark. the relevant sustainability indicators used to measure the environmental or social characteristics or the overall sustainable impact of the financial product. This is evident in the insightful material we produce and news coverage we receive. how would an ESG event/condition have a material adverse impact on the value of an investment and how those risks are dealt with); and. environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters). Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial services sector, as amended. This Regulation supplements the disclosure requirements laid down in Directives 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU, (EU) 2016/97, (EU) 2016/2341, and Regulations (EU) No 345/2013, (EU) No 346/2013, (EU) 2015/760 and (EU) 2019/1238 as well as in national law governing personal and individual pension products. the manner in which sustainability risks are integrated into their investment decisions (i.e. the results of the assessment of the likely impacts of sustainability risks on the returns of the financial products they make available. AIFs, UCITS). You may unsubscribe at any time.