Sustainable Finance: What Are the Latest News on European Policies

On the occasion of the SRI weeks, the usual monthly update meeting on ESG policies of the Sustainable Finance Forum lasted sixty minutes – and not thirty – and was also open to non-members.

Many topics were at the center of attention, including: the new European Commission, the prospects for sustainable finance in the EU, the next moves of ESMA, the priorities to keep in mind for reporting according to the CSRD directive, the SBTi standards for financial institutions, the ESA report on PAI and the implementation of the ESAP, the single access point that provides centralized electronic access to relevant information for capital markets and financial services.

The new European Commission and the prospects for sustainable finance in the EU

The new EU Commission was elected a month ago and sees Maria Luis Albuquerque at the helm of the Financial Services and Savings and Investment Union (DG Financial Services and Savings and Investment Union). The Forum has two main mandates: to reduce reporting burdens for companies by 25%, rising to 35% for SMEs, and to support sustainable finance and develop a categorization of sustainable financial products and services.

The Commission’s work is expected to begin in December, after the hearings of the designated Commissioners and the Parliament’s vote on the College of Commissioners, which will be held in the coming days.

In particular, Commissioner Albuquerque will appear on November 6th at the hearing in the ECON Committee of the Parliament with clear plans on sustainable finance that intend to consolidate the regulatory framework, simplifying the existing rules and supporting their implementation over a five-year horizon. In particular, the Portuguese former Minister of Finance intends to pay cross-cutting attention to gender and generational issues, in a just transition path, and support the transition from Capital Markets Union to Savings and Investments Union.

On the SFDR front, she aims to evaluate the feasibility of a simple and rigorous categorization system and the coherence with the EU regulatory framework on disclosure, while on the EU Taxonomy front, to include more economic activities, simplify the DNSH (Do No Significant Harm) criteria, and make the path of transition activities credible.

There is also space for further guidelines for ESRS, Taxonomy and EUGBS while improving interoperability between EU and international standards, in particular on transition and sustainability reporting. And finally, continue to fight against greenwashing, promote financial education and protect end investors.

ESMA’s next moves on sustainable finance

ESMA’s timeline is fitting: starting from the entry into force of the guidelines on ESG fund labeling on November 21st up to the preparation of reporting standards for SMEs that will also be subject to the CSRD from 2029.

Priorities to keep in mind for reporting according to the CSRD directive

There are three priority macro areas to keep in mind when drafting the 2024 CSRD-compliant sustainability reports: materiality, structure and taxonomy. As regards materiality, it is necessary to provide detailed information on the materiality analysis process following the EFRAG guidelines on the implementation of the ESRS and to guarantee and demonstrate engagement with impacted stakeholders.

In terms of structure, it is good to keep in mind that the perimeter is the same as the financial statement, that quantitative information is needed to support the materiality analysis and that a summary overview must be provided via a table of contents. Finally, on the taxonomy front, it is necessary to show coherence between the report and the transition plans and provide information on the materiality analysis relating to the entire value chain.

Furthermore, pay attention to compliance with International Financial Reporting Standards (IFRS) and drafting according to the European Single Electronic Format (ESEF), suggests FFS.

SBTi launches first net zero standard for sustainable finance

SBTi (Science Based Target initiative), a non-profit organization created to support companies and financial institutions around the world in the fight against the climate crisis and provide them with a clearly defined path to reduce emissions in line with the goals of the Paris Agreement, recently published the first voluntary standard for net-zero targets based on the financial sector.

The new standard for sustainable finance applies to institutions that generate 5% or more of their revenues from lending, investing (as owner or manager of assets), insurance underwriting and/or capital markets activities and establishes both short-term and long-term requirements to address Scope 3 emissions by aligning financial flows with global climate goals. It also establishes a ban on new fossil fuel financing for financial institutions with targets validated by the platform.

Financial institutions will need to achieve five key outcomes : demonstrate entity-level climate leadership by committing to the net-zero transition and integrating climate considerations into governance; increase the scope, quality and transparency of their emissions inventory over time; set climate alignment targets and benchmark targets based on a predefined list of emissions-intensive sectors; and ensure that progress against climate targets is tracked and accessible through disclosure.

ESA report on PAI

Last week, the European Supervisory Authorities (ESAs, i.e. ESMA, EBA, EIOPA) published their third annual report with the analysis of PAI declarations as of 30 June 2023.

Among the main findings, the ESAs reported a significant improvement in the quality of responses provided by the competent national authorities and an improvement in the accessibility and quality of information on PAIs, especially at product level.

EU authorities also provided examples of good and bad practices in PAI declarations. Among the former, the Forum highlighted the stipulation of a commitment to decarbonize investments, the description of the share of portfolio aligned with the Paris Agreement and the disclosure of engagement actions and escalation policies, among the latter generic references to alignment with the objectives of the Paris Agreement.

What is the current status of the ESAP implementation?

Finally, space during the update of the Forum to the ESAP which will operate through a two-level system in which the information that will be collected starting from July 2026, will first be transmitted by the entities to the “collection bodies” (OAM) and then will be made available by the collection bodies to the ESAP.

The Technical Implementation Standards (ITS) establish the tasks of the OAMs by specifying detailed requirements for these bodies, such as the timeframes and formats to be used, validation controls, and the type of metadata. The standards also specify requirements for making information easily accessible to users, including how reporting entities should be categorized and the types of information to be made available.

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(Featured image by dimitrisvetsikas1969 via Pixabay)

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First published in ESG NEWS. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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