ESAs propose draft rules on unified sustainable finance disclosures
Europe is setting new rules on disclosures on financial products that seek to make sustainable investments, contributing to environmental objectives. The three European Supervisory Authorities (ESAs) – the European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority – recently delivered to the European Commission (EC) their final report with draft Regulatory Technical Standards (RTS) regarding disclosures under the EU’s Sustainable Finance Disclosure Regulation (SFDR), as amended by the subsequent Regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation).
Before we go any further, just what do we mean by a taxonomy here? In XBRL parlance, a taxonomy is a digital dictionary supplying meanings for reported data, defining the digital tags used to label facts, and indicating their attributes and interrelationships. On the other hand, in sustainability circles a ‘taxonomy’ such as this one is simply a framework to determine what activities count as sustainable and fall within the remit of the regulation.
The draft RTS aim to provide disclosures to investors regarding the investments made by financial products in environmentally sustainable economic activities, delivering comparable information that facilitates informed investment choices. They are also intended to establish a single rulebook for sustainability disclosures under the SFDR and the Taxonomy Regulation. At the heart of the proposals are periodic disclosures that identify the environmental objectives to which the product contributes and show how and to what extent the product’s investments are aligned with the EU Taxonomy. The EC will now examine the report and decide whether to endorse the proposals within three months.
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