Omnibus: European Supervisory Authorities and ESG

Posted on March 5, 2021 by Editor

This week has seen several substantial news items from Europe on sustainability and Environmental, Social and Governance (ESG) reporting, so we’re bringing you a roundup here.

First, the three European Supervisory Authorities (ESAs) – the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA) – have issued a joint supervisory statement on the effective and consistent application and national supervision of the Regulation on sustainability-related disclosures in the financial services sector (SFDR), which comes into force on 10 March. It aims to promote a level playing field and protect investors, and recommends that the draft Regulatory Technical Standards (RTS) should be used on an interim basis.

Each of the ESAs has also responded to the call by the European Commission (EC) for advice on Key Performance Indicators (KPIs) that entities subject to the Non-Financial Reporting Directive (NFRD) should use to disclose how and to what extent their activities qualify as environmentally sustainable under the EU Taxonomy Regulation. EBA’s response focuses on disclosure by credit institutions and investments, underlining the importance of a green asset ratio (GAR). ESMA’s recommendations relate to KPIs for non-financial undertakings (aka “companies”!) and asset managers, while EIOPA’s advice deals with insurers and reinsurers.

Finally, the EBA has launched a public consultation, open until 1 June, on draft implementing technical standards (ITS) on Pillar 3 disclosures of ESG risks. The consultation paper was developed in parallel with its response to the EC (above). The ITS put forward comparable ESG disclosures and KPIs, including the GAR, that will show how entities are embedding sustainability considerations into their risk management, business models and strategy.

We’ve said it before and we’ll say it again: consistent reporting standards are needed. As is machine readable data.