ESAs Consult on Environmental, Social and Governance Disclosure Rules

The three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) issued a Consultation Paper seeking input on proposed environmental, social and governance (ESG) disclosure standards for financial market participants, advisers and products.

These standards have been developed under the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR), aiming to:

• strengthen protection for end-investors;
• improve disclosures from financial market participants and financial advisers to investors; and
• improve financial products disclosures to investors.

The SFDR enables the ESAs to develop Regulatory Technical Standards (RTS) on the content, methodology and presentation of ESG disclosures at entity and product level. The consultation paper also proposes a framework to facilitate sustainable investment (Taxonomy Regulation).

Entity-level Adverse Impact Disclosures

Entities should disclose on their websites any investment decisions which have adverse impacts on the:

• climate and the environment; and
• social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.

The ESAs have included draft indicators for adverse impacts, based on consultations with the Joint Research Centre of the European Commission and the European Environment Agency.

Product Level ESG Disclosures

The sustainability characteristics or objectives of financial products should be disclosed in their pre-contractual and periodic documentation and on their website. The draft RTS proposed rules for executing this disclosure, ensuring transparency on product sustainability. The RTS also establishes additional disclosures that should be provided by products that have designated an index as a reference benchmark.

Next Steps

The ESAs invite feedback to this consultation by September 1, 2020. Once the consultation is closed, the draft RTS will be finalized and submitted to the European Commission.

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