Comprehensive information on sustainability to be disclosed as of 10 March 2021.
What Is It About?
On 10 March 2021, key provisions of the Disclosure Regulation (Regulation (EU) 2019/2088) will come into force throughout the EU. The Disclosure Regulation introduces comprehensive new transparency obligations regarding information on sustainability and, in particular, sustainability risks.
Who Is Affected?
- Financial Market Participants (Art 2 no 1 Disclosure Regulation): These are – briefly summarized – regulated companies that prepare financial products, manage funds or carry out portfolio management. This primarily includes credit institutions as well as investment firms with portfolio management, insurance companies with insurance-based investment products and managers of funds (AIF and UCITS).
- Financial Advisors (Art 2 no 11 Disclosure Regulation): These are regulated companies that provide investment advice (eg, credit institutions and investment firms) or advice for insurance-based investment products (eg, insurance intermediaries).
What Information Must Be Disclosed?
Roughly speaking, information related to the sustainability of either the investment decisions of the company (the financial market participant or financial advisor) or the (investment) product must be disclosed:
- Sustainability: The Disclosure Regulation understands sustainability more comprehensively than the Taxonomy Regulation (Regulation (EU) 2020/852) and includes not only environment, but also social and corporate governance (ie, the entire "ESG spectrum" – environment/social/governance).
- Information on the Investment Decisions of the Company: Among other things, strategies for incorporating sustainability risks (example: How does the increasing shift away from fossil fuels affect decisions regarding investment in energy companies?) and information on principal adverse sustainability impacts (example: Is there a gender pay gap at companies in which investments are made?).
- Information on the Product: For each product, it must be disclosed how sustainability risks are included and whether they have an impact on the return. For products that promote sustainability or have sustainable investment as objective, more extensive disclosure requirements apply.
- The exact scope of the disclosure obligation depends on whether the company is considered a financial market participant (more obligations) or a financial advisor (fewer obligations).
Where Must the Information Be Disclosed?
Most of the obligations are to be disclosed to the customers within the framework of the existing pre-contractual information obligations (eg, according to the MiFID II or IDD rules). Further information must be included on the homepage and in regular reports.
What Are the Next Steps?
The new obligations will apply from 10 March 2021. Regulatory technical standards published by the European Supervisory Authorities should have been final by then. However, so far the standards are only available in draft form. It is expected that they will apply starting 1 January 2022. However, as a rule we recommend that the requirements contained therein (including comprehensive templates in the annex) as far as possible be considered as of 10 March 2021 in order to reduce the need for changes at a later date.