Sustainability Blog #13

Legislation and regulation

On 14 September 2023, the European Commission initiated two consultations regarding Regulation (EU) 2019/2088, also known as the Sustainable Finance Disclosure Regulation (SFDR). These consultations, which will run until 15 December 2023, involve a targeted and public feedback-seeking process. Their aim is to assess if the SFDR effectively meets investors’ requirements and if it remains suitable for its intended purpose. The consultations have the potential to result in a significant overhaul of the SFDR because the European Commission is consulting on whether to build out Articles 8 and 9 into fund labels or possibly develop entirely new investment strategy-based labels.

More news on the SFDR developed on 28 September, as the European Supervisory Authorities (ESAs) jointly issued the 2023 Joint ESAs Report on the extent of voluntary disclosure of principal adverse impacts (PAIs) under the SFDR. The report’s primary findings highlight significant variability in compliance with disclosure requirements across financial market participants and jurisdictions. Nevertheless, the most recent survey conducted by national competent authorities reveals overall improvement in the implementation of voluntary disclosures. Additionally, such disclosures are now more readily accessible on websites. However, there remains a need for more comprehensive and satisfactory explanations in cases where PAIs are not considered. The ESAs plan to conduct further analysis of voluntary PAI disclosures by financial products, recognising the limited understanding in this area. Furthermore, they suggest that the European Commission should take the ESAs’ findings into account when conducting the comprehensive assessment of the SFDR's performance mentioned above. You can find the Annual Report here.

On 19 September, the European Parliament announced a provisional agreement on a proposed directive that will ban generic environmental claims (e.g. “environmentally friendly”, “natural”, “biodegradable”, “climate neutral” or “eco”) if there is no proof of recognised, excellent environmental performance relevant to the claim. Moreover, it will also ban claims asserting that a product has a neutral, reduced, or beneficial impact on the environment due to emissions offsetting schemes. Finally, advertising messages for products incorporating design elements that suggest sustainability will only be permitted to use sustainability labels from authorised certification programmes. The proposed directive now requires final approval by the Council of the EU and the EU Parliament.

News and publications

On 18 September, the Taskforce on Nature-related Financial Disclosures (TNFD) published its framework and final recommendations for managing and disclosing nature-related risks. The framework draws inspiration from the framework established by the Task Force on Climate-related Financial Disclosures (TCFD) but concentrates on aiding businesses in evaluating their nature-related impacts, dependencies, risks, and opportunities. Slated for publication next year, the finalised guidance for financial institutions will encompass specific metrics pertaining to exposure in high-impact sectors and environmentally sensitive areas.

Norges Bank Investment Management (NBIM) has issued an interesting report on expectations of companies regarding climate change. The report strongly emphasises that company boards should ensure that climate risks and opportunities are integrated into corporate strategy and risk management. You can read the report here.