Ireland Update: Sustainable Finance Developments

Renewed Sustainable Finance Strategy

On 8 April 2020, the European Commission published a public consultation on a renewed sustainable finance strategy, which is open until 15 July 2020.

The strategy will provide a roadmap to guide the EU in new actions to increase private investment in environmental, social and governmental (“ESG”) projects and activities.

Many of these actions are linked to the objectives set out in the European Green Deal.  The strategy will also provide additional enabling frameworks for the European Green Deal Investment Plan.

Taxonomy Regulation Update

The legislative process for the formal adoption of the Taxonomy Regulation reached another milestone when the Council of the EU adopted its draft Taxonomy Regulation on 15 April 2020 and published the agreed text on 16 April.  It sets out an EU-wide classification system or “taxonomy”, which will provide a common method to identify those economic activities which are considered environmentally sustainable.

The Taxonomy Regulation applies to:

• “financial market participants”¹, such as investment funds that make available financial products;
• firms which are obliged to publish certain non-financial statements under Directive 2013/34/EU (that is, large public-interest entities); and
• measures adopted by Member States or the EU setting out any requirements on financial market participants or issuers of financial products or corporate bonds that are made available as environmentally sustainable.

In order for an economic activity to qualify as environmentally sustainable under the Regulation, it has to:

• substantively contribute to at least one of the six environmental objectives (see below);
• do no significant harm to any of those environmental objectives;
• be carried out in compliance with minimum social and governance safeguards; and
• comply with technical screening criteria which define what “substantially contribute” and “do no significant harm” mean to an environmental objective.

The framework will be based on the following six EU environmental objectives:

• climate change adaptation;
• sustainable use and protection of water and marine resources;
• transition to a circular economy;
• pollution prevention and control;
• protection and restoration of biodiversity and ecosystems; and
• climate change mitigation.

Disclosure Regulation Consultation

On 23 April 2020, the Joint Committee of the European Supervisory Authorities(“ESAs”) published a consultation paper on proposed Regulatory Technical Standards (“RTS”) (level 2 regulations) on content, methodologies and presentation of disclosures under the Disclosure Regulation (EU) 2019/2088 (which harmonises ESG disclosure standards for different types of information).  The RTS aim to ensure that financial market participants and financial advisers give the necessary information on the adverse impacts of investment decisions and financial advice to help end-investors make informed investment decisions.

The draft RTS relate to several disclosure obligations under the Disclosure Regulation.  The proposals include the following:

• product compliance with the principle of “do not significantly harm” in the draft Taxonomy Regulation;
• entity-level website disclosure of the principal adverse impacts of investment decisions on sustainability factors ; and
• disclosure of the sustainability characteristics or objectives of financial products in an entity’s pre-contractual and periodic documentation and on their website.

What Next?

The Taxonomy Regulation has to be adopted by the European Parliament at a second reading before it can be published in the Official Journal of the EU and enter into force 20 days later (with the requirements applying after the adoption of certain Delegated Acts).

While COVID-19 will bring some challenges on timing, the taxonomy for climate change mitigation and adaptation should be established by the end of 2020 in order to ensure its full application by the end of 2021.  For the four other environmental objectives, the taxonomy should be established by the end of 2021 for application by the end of 2022.

The deadline for comments on the proposed Disclosure Regulation RTS is 1 September 2020. The draft RTS will be submitted to the European Commission as a final report for endorsement before being published in the Official Journal of the EU.  Six of the RTS must be delivered to the Commission by 30 December 2020 and one must be delivered by 30 December 2021.

Further Information

If you would like further information, please contact your regular Maples Group contact or any of the contacts listed below.

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¹Regulation (EU) 2019/2088