ESG New European Commission package of measures

On the 21 April 2021, the European Commission released a package of measures to help improve the flow of money towards sustainable activities across the European Union, in line with the European Commission Sustainable Finance Action Plan which had already implemented the Taxonomy Regulation, the Climate Benchmarks Regulation and the Sustainable Finance Disclosure Regulation ("SFDR").

The 2021 package of measures aims to enable investors to re-orient investments towards more sustainable technologies and businesses. These measures will be instrumental in making Europe climate neutral by 2050. They will make the EU a global leader in setting standards for sustainable finance.

The package will include:

• The EU Taxonomy Climate Delegated Act.

This aims to support sustainable investment by making clearer the technical screening criteria for certain economic activities. The Delegated Act provides detailed technical screening criteria for the environmental objectives of (i) climate change adaptation and (ii) climate change mitigation (Annex 1 of the EU Taxonomy Climate Delegated Act). It is expected to apply from 1st January 2022.The technical screening criteria for the other four taxonomy environmental objectives will come into effect from 1 January 2023 (requiring another delegated act).

• A proposal for a Corporate Sustainability Reporting Directive (CSRD).

This proposal aims to improve the flow of sustainability information in the corporate world by revising the Non-Financial Reporting Directive (NRFD). It will make sustainability reporting by companies more consistent, so that financial firms, investors and the broader public can use comparable and reliable sustainability information for the benefit of investors and stakeholders. The scope will be expanded from large EU public interest entities to all large companies whether they are listed or not and without the previous 500 employees threshold. It would mean that all large companies are publicly accountable for their impact on people and the environment. In addition the EU Commission is proposing to extend the scope to include listed SMEs, with the exception of listed micro-entreprises. SMEs may then report according to standards that are simpler than the standards that apply to large companies. The European Financial Reporting Advisory Group (EFRAG) will be responsible for developing these draft standards. This proposal would ensure that companies report the information that investors and other financial market participants subject to the sustainable finance disclosure regulation (SFDR) need. This means that the reporting standards would include indicators that correspond to the indicators contained in the SFDR. The timeline will depend on how the Parliament and Council progress. If they reach agreement in the first half of 2022, the EU Commission should be able to adopt the first set of reporting standards under the new legislation by the end of 2022, which would mean that companies would apply the standards for the first time to reports published in 2024 covering the 2023 financial year.

• Finally, six amending Delegated Acts :

1. regarding sustainability risks and factors for UCITS, Commission Delegated Directive amending Directive 2010/43/EU as regards the sustainability risks and sustainability factors to be taken into account for Undertakings for Collective Investment in Transferable Securities (UCITS). We refer to our Sustainable Finance Newsflash Series number 5. No substantial changes have been made since then.
2. regarding sustainability risks and factors for AIFM, Commission Delegated Regulation amending Delegated Regulation (EU) No. 231/2013 as regards the sustainability risks and sustainability factors to be taken into account by Alternative Investment Fund Managers. We refer to our Sustainable Finance Newsflash Series Number 4. No substantial changes have been made since then.
3. regarding the integration of sustainability factors into products oversight and governance, Commission Delegated Regulation amending Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359 as regards the integration of sustainability factors, risks and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct of business and investment advice for insurance-based investment products. The ESG considerations mentioned in the Sustainable Newsflash Series under point 4 and 6 would also apply to insurance undertakings.
4.  regarding the integration of sustainability factors into products governance obligations, Commission Delegated Directives amending Delegated Directive (EU) 2017/593 as regards the integration of sustainability factors into the product governance obligations. We refer to our Sustainable Newsflash Series number 13.
5.  regarding  the integration of sustainability risks in the governance of insurance and reinsurance undertakings, Commission Delegated Regulation amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings. The ESG considerations mentioned in the Sustainable Newsflash Series under point 4 and 6 would also apply to insurance and reinsurance undertakings.
6.  regarding the integration of sustainability factors into organisational requirements and condition for investment firms, Commission Delegated Regulation amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms. We refer to our Sustainable Newsflash Series Number 13.

The Delegated Acts and the Taxonomy Regulation Delegated Acts, will have to be approved by the Council and the Commission before being published in the Official Journal. These six amending Delegated Acts are expected to start applying from October 2022.