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Investors warn EC over timeline for sustainable disclosure rules

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PensionsEurope and other financial industry associations have written to the European Commission to express concerns about the application timeline for new EU disclosure rules for sustainable investments and sustainability risks.

The eight* signatories argued that the regulation was likely to become applicable before important supporting measures were adopted, “thus creating significant compliance challenges and liability risks for market players, as well as confusion for investors”.

The associations urged the Commission “to take immediate action to ensure that the industry is provided with realistic time for implementation”.

An official at the Commission told IPE that the European Parliament’s summer recess had delayed publication of the rules, which had in turn “already given financial entities time to adapt to the new requirements”. (See below for the Commission’s full statement.)

The associations suggested that the new requirements in the regulation become applicable at least one year after official publication of the so-called Level 2 measures, which aim to clarify the understanding of the new requirements and how to comply with the regulation.  

According to the signatories, under the current timeline the European supervisory authorities (ESAs) would be drafting most of the Level 2 measures over the course of the roughly 12 months they had to do so.

After that, the Commission would still need to adopt the authorities’ proposals while the EU Council and the European Parliament were entitled to a scrutiny period.

All told, according to the signatories, it was likely that the final regulatory technical standards (RTS) would not be published before the current application date of the regulation.

“In the meantime,” they wrote, “as the Commission may potentially change draft RTS, the industry cannot fully rely on the draft Level 2 texts.”

The timeline was even more questionable, they added, in relation to Level 2 measures about a requirement for disclosure on adverse sustainability impacts. These measures had to be developed within just over two years of the regulation’s official publication.

The Commission responds

In a written comment, a European Commission official told IPE:

“Although the new rules were already agreed in March, they have not yet been published in the Official Journal due to the European Parliament recess. We expect them to be published in October, and to start applying in early 2021. This delay has already given financial entities time to adapt to the new requirements as the clock will only start ticking as of the publication in the Official Journal.

“The rules will introduce stronger transparency obligations on how financial companies integrate environmental, social and governance (ESG) factors in their investment decisions. They also introduce harmonised rules on how financial market participants should inform investors about the impact of investments on the environment and the society. This is in line with the EU’s commitment to implementing the Paris agreement and leading the global fight against climate change.

“The three European Supervisory Authorities have already engaged in preparatory work in order to be able to deliver draft technical standards in 2020.

“We hope that this up-front planning can resolve the timing issues the European associations are concerned about.”

Current timeline 

Sustainable finance disclosure regulation timeline

Source: Letter to EC, 19 September; edited by IPE

No IORP II delegated act

The regulation is one of three that make up the legislative part of the European Commission’s sustainable finance action plan. It introduces disclosure obligations for various financial market participants in relation to the integration of sustainability risks and consideration of adverse sustainability impacts in investment decision-making.

In March the European Parliament and EU member states reached a political agreement on the regulation. The text of the provisional agreement was only added later, revealing that a controversial provision for delegated acts under IORP II had been scrapped – PensionsEurope and the German occupational pension association aba had argued against the provision.

The final text of the disclosure regulation has not yet been officially published but could enter the Official Journal next month, according to an Association for Financial Markets in Europe document published in June. The regulation applies from 15 months after then.

IPE contacted the European Commission for a comment but had not heard back at the time of publication.

*The associations behind the letter to the European Commission were:

  • Association for Financial Markets in Europe (AFME)
  • Alternative Investment Management Association (AIMA)
  • Association of Mutual Insurers and Insurance Cooperatives in Europe (AMICE)
  • European Association of Cooperative Banks (EACB)
  • European Banking Federation (EBF)
  • European Fund and Asset Management Association (EFAMA)
  • Insurance Europe
  • PensionsEurope

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  • there is a spate of financial legislation coming from the european commission

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