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Meanwhile, Article 7 of the Taxonomy Regulation applies the following boilerplate pre-contractual and periodic reporting disclosure to all otherwise in-scope financial products that are not “sustainable investments” and that do not promote their ESG characteristics (in accordance with Articles 8 and 9 of the SFDR, respectively): “The investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities.”. Investment firms, particularly investment managers and product manufacturers, now need to work out what data they need, how they will analyze it, and how they will report it. The Taxonomy Regulation also introduces new disclosures for corporates subject to the NFRD. +1.877.322.8738, Sustainable Finance Disclosure Regulation, The Sustainable Finance Disclosure Regulation, The OECD Guidelines for Multinational Enterprises, The UN Guiding Principles on Business and Human Rights, The Declaration on Fundamental Rights and Principles at Work, International Labour Organization Declaration's Eight Fundamental Conventions. Whether they are intentional or accidental, if ESG factors are ignored they can have an outsized impact on a general account at... Americas The EU Green Deal is Von der Leyen Commission’s program aiming to make Europe’s economy more sustainable. It contains recommendations relating to the overarching design of the Taxonomy, as well as guidance on how companies and financial institutions can make disclosures using the taxonomy. +1.203.810.1000, Europe, Middle East & Africa Under the EU taxonomy regulation, large listed issuers have to report on the proportion of their turnover, capital expenditure and operating expenditure related to activities deemed environmentally sustainable under the EU taxonomy framework. Whilst the fate of the Taxonomy Regulation hung in the balance, there was still a genuine chance that the ESG regime might wilt on the vine before it had the chance to blossom, especially with Member States publicly challenging the position of their peers on matters ranging from forestry to nuclear power. This is not the only quirk of Article 18 either, which is also notable for requiring the entity under evaluation to comply with the “do no significant harm” (DNSH) principle in Article 2(17) of the SFDR, which in itself is uncontentious, but does draw attention to the “link” (or lack thereof) between the SFDR DNSH principle in Article 2(17) of the SFDR and the similar principle in Article 17 of the Taxonomy Regulation, which applies to the Article 9 Environmental Objectives. * To directly request the webinar recordings, click here. At the core of the Taxonomy is Article 3, which, in conjunction with several other articles, identifies the following categories of “economic activities”: The first set of activities—the “principal” Environmentally Sustainable activities—are the core of the regime, while Transition and Enabling activities are classes that facilitate the transition to a sustainable economy that the Regulation is designed to facilitate. Articles 5 of the Taxonomy Regulation interfaces with Article 9 of the SFDR and adds taxonomy-specific pre-contractual and periodic reporting disclosures. PART A Explanation of the Taxonomy approach. And more importantly, what … ESG Considerations in the Insurance Space. Moreover, the European Commission Consultation launched in February 2020 (accompanied by a Background Document) proposes to expand the application of the Directive and reconcile the disclosure requirements of the NFDR with the reporting requirements of the SFDR and Taxonomy. The viability of the EU’s ESG regulatory regime had been in doubt up until very recently. Mr. Barrie Ingman is a member of FactSet’s Regulatory Solutions Group. By following the recommendations of the IIF to pool their efforts, they also started a race to create the premiere transnational ESG framework, in a potentially zero-sum “winner takes all” bid to become the principal international ESG standard and one of the most important and impactful rulesets on the planet. The EU Taxonomy Regulation: An Overview Introduction. Actually, the TEG’s mandate was only to consider the four environmental objectives (pollution prevention and control, use and protection of water and marine resources, circular economy, and protection and restoration of biodiversity and ecosystems) in the context of avoiding significant harm. On 9 March 2020, the TEG published its final report on EU taxonomy. Both the Taxonomy Regulation and the SFDR have enormous scope and application, covering more or less the entire asset management industry and beyond. The report is supplemented by a technical annexcontaining: 1. Taxonomy is one of those subjects that seems very straightforward. The EU Green Deal is the Von der Leyen Commission’s program to make Europe’s economy more sustainable. With the first legal, pan-regional framework, the EU will have first-mover advantage and may potentially obtain important network effects that could serve as barriers to entry to the “ESG standards business” in the future. Once these steps have been taken, investment firms will then need to identify if they have the resources, data, systems, personnel, and subject matter expertise to meet the requirements. Rather, it will make it easier for companies with sustainability policies to raise funding for their projects, if they meet the criteria set out in the taxonomy. +44. The taxonomy is the EU’s antidote to greenwashing. Above all, this system should help companies to raise finance for sustainable activities, by encouraging them to publish the percentage of their turnover or investments that is in line with the “green list” of environmentally sustainable activities. Global Headquarters The SFDR (as supplemented by the Taxonomy) requires investment firms to disclose: Depending on the rule in question, the relevant SFDR disclosure will appear in one or more of the following locations: on the investment firm’s website, in periodic reports, in promotional material, and/or in pre-contractual documentation. In order to reach the goals of climate neutrality, sustainable economic growth, and inclusion of all countries, a classification system … Moreover, the term “taxonomy,” whilst somewhat oblique, is apposite since, at its simplest, the regulation is a classification system that identifies whether economic activities are sustainable from an environmental perspective. Struggling with the question of “what is a taxonomy” as it applies to your WordPress site? For example, companies that are not required to publish non-financial statements, like SMEs, may decide to publish information on their website regarding their alignment with the Taxonomy Regulation. The EU Taxonomy was developed by the Technical Expert Group on Sustainable Finance (TEG), which comprises 35 members and more than 100 advisors and observers from the financial markets, industry, science, and civil society. Norwalk, CT This year, the world’s third-largest asset manager by assets under management (AUM) and the world’s second-largest accounting firm by revenue predicted, respectively, that sustainable assets, already valued at over $30 trillion, would further grow as a proportion of global AUM, which would pass $100 trillion before year end. More specifically, this tool creates a standardised way of answering the question ‘How sustainable is this … However, SEC Chair Clayton dismissed the recommendations, arguing that conflation of ESG factors led to an analysis that was insufficiently precise to meaningfully inform investment decisions. In its draft proposal, the Commission explained that views differed as to the level of detail an EU taxonomy should have, an issue widely discussed among investors and asset managers before and after the action plan was launched. Despite the ongoing rise in ESG investments and attention given to the topic, investors are still plagued by several challenges. ESG Regulations Guide, the EU ESG regulatory regime is comprised of several disparate measures, nearly all of which intersect with the Taxonomy in some way. The introduction of the EU Taxonomy is getting closer and the impact will be significant. 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