Even more regulations on Sustainable Finance

On April 21st, 2021, the EU adopted a new package of regulatory measures concerning Sustainable Finance. We outlined hereafter the main characteristics of these initiatives :

  1. The EU Taxonomy climate delegate act. To be adopted by the end of May, 2021. After revision, green economic activities eligible to the taxonomy have been defined.  The EU has finalized the EU taxonomy criteria for two of the six objectives (mitigation and adaptation).  Main changes and controversial subjects concerning the exclusion in the case of agriculture sector, natural gas, and nuclear energy—for these two sectors the discussion, very political, of course, will be postponed in the second half of 2021. The coverage represents 40% of listed companies in Europe. Date of application: January 2022. It now up to everyone to find the solutions on the market to comply with this regulation.
  2. A proposal for a Corporate Sustainable Reporting directive (CSRD), to enforce the comparability of corporate sustainability reporting. The date of application is mid-2022. Main strengths of the document:
    • it foresees the adoption of regulated common standard;
    • the scope is extended to 50,000 companies;
    • it imposes a mandatory external audit of the report;
    • it is complementarity to taxonomy and to the key concept of Do Not Significant Harm (DNSH), that asks to measure the impact of ESG activity.  
  3. Six amending delegated acts to fiduciary duties, investments and insurance. It is probably the main regulatory progress provided by the package because it asks to the advisory, insurance and investments, to integrate ESG in their activities vis à vis of the clients. Quite an enormous challenge, considering that, currently, the market is not able to answer to the market needs in terms of transparency of the SRI tools or funds used, or due to the lack of instruments including this—especially in for insurance and credit.

All these evolutions go in the right direction: toward the standardization of Sustainable Finance, and they should help foster the comparability regarding the investments’ impacts. Once again, it’s worth noticing that control authorities and control processes must be defined and implemented too, to protect the end-investors and to prevent greenwashing—regulations without control would be meaningless.

On our side, our ESG Impact toolkit allows us to easily adapt to this evolutive regulatory context, and to propose to Asset Managers ad-hoc solutions, among other needs, for EU Taxonomy and CSDR compliance: ESG Impact datasets; Impact rating methodologies (ESG Impact, Climate Change, Physical Risk / Materiality); Key ESG risks mapping for 158 sub-industries; Impact Performance scorecards.

Credit: Photo by Guillaume Périgois on Unsplash

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