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EU sets out plan for investor sustainability disclosure rules

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The European Parliament and EU member states have reached a political agreement on the so-called disclosure regulation that forms part of the European Commission’s sustainable finance plan, it was announced today.

According to a statement from the EU Council, the EU member states body, the text that was agreed today requires institutional investors to disclose:

  • the procedures they have in place to integrate environmental and social risks into their investment and advisory processes;
  • the extent to which those risks might have an impact on the profitability of the investment; and
  • where they claim to be pursuing an environmentally friendly strategy, information on how this strategy is implemented and the sustainability or climate impact of their products and portfolios.

The Council said the proposed regulation “should in practice limit possible ‘greenwashing’, or “the risk that products and services which are marketed as sustainable or climate friendly in reality do not meet the sustainable/climate objectives claimed to be pursued”.

The rules would “encourage investors to be more aware of the impact of their business on the environment”, it added.

According to the Commission, the regulation is about more than disclosure. It said the new regulation set out how financial market participants and advisers must integrate environmental, social or governance (ESG) risks and opportunities in their processes. This was in addition to rules about how those financial market participants should inform investors about their “compliance” with the integration of ESG risks and opportunities.

Next steps

EU ambassadors must now endorse the political agreement, and after that the European Parliament and Council will be called on to adopt the proposed regulation at the first reading.

An EU press officer told IPE the agreement was a provisional political one, and that further technical work was required on the text to finalise drafting. The text should be made available when it is confirmed by the EU ambassadors.

The disclosures regulation is the second of the Commission’s sustainable finance legislative proposals for which there is now political agreement. Last month agreement was reached on a low-carbon benchmarks regulation proposal.

‘Delegated acts’

It is not clear what was agreed, if anything, with regard to whether the regulation should allow for delegated acts under the new EU pension fund legislation, the IORP II directive.

The European Commission’s proposal for the regulation, unveiled in May last year, provided for this, but the EU pension fund industry has lobbied against it.

The European Parliament went into negotiations with the Council having stuck with a provision for delegated acts under IORP II, while the member states dropped it from their version.

The EU press officer could not say what had been agreed about this.

According to the Commission, the regulation covered five financial services sectors, including investment funds, private and occupational pensions, and individual portfolio management. 

It also indicated the rules were for “manufacturers of financial products and financial advisers towards end-investors”, while the Council statement referred to “financial companies” and “institutional investors, such as asset managers or insurance companies”.

Aba, the German occupational pension association, argued that occupational pension funds, which have a social purpose and regularly act as users of financial market products, should not be included in the definition of financial market participants under the regulation.

It has also said that pension schemes should not be defined as financial market products because they were embedded in national social and labour law. 

The Commission said the rules introduced ”a disclosure toolbox to be applied in the same manner by different financial market operators”.

The European Insurance and Occupational Pensions Authority and the other two European supervisory authorities, plus a joint committee of these three bodies, would “ensure further convergence and harmonisation of disclosures in all the sectors concerned”, it said.

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