EU regulation relative to sustainability

There are a certain number of EU regulations and directives that are important to understand as they require some reporting both for companies, issuers, investors and asset managers.

These drive reporting, but what is important to understand is that they really target change in how companies and investors are thinking and conduct their businesses.

Companies and Issuers

Directive 2014/95/EU – also called the non-financial reporting directive (NFRD) – lays down the rules on disclosure of non-financial and diversity information by large companies. This directive amends the accounting directive 2013/34/EU. Companies are required to include non-financial statements in their annual reports from 2018 onwards.

The NFDR is currently under review.

Directive 2014/95/EU – also called the non-financial reporting directive (NFRD) – lays down the rules on disclosure of non-financial and diversity information by large companies. This directive amends the accounting directive 2013/34/EU. Companies are required to include non-financial statements in their annual reports from 2018 onwards.

The NFDR is currently under review.

The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. The EU taxonomy is an important enabler to scale up sustainable investment and to implement the European Green Deal. Notably, by providing appropriate definitions to companies, investors and policymakers on which economic activities can be considered environmentally sustainable, it is expected to create security for investors, protect private investors from greenwashing, help companies to plan the transition, mitigate market fragmentation and eventually help shift investments where they are most needed.

The Commission is currently preparing an IT tool that will facilitate the use of the taxonomy by allowing users to navigate easily through the taxonomy. The tool will be available from the beginning of 2021.

More information can be found here

Investors and Asset Managers

“This Regulation aims to reduce information asymmetries in principal‐agent relationships with regard to the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social characteristics, and sustainable investment, by requiring financial market participants and financial advisers to make pre‐contractual and ongoing disclosures to end investors when they act as agents of those end investors (principals).”

The level 1 regulation has a deadline on 10 March 2021.

Link to the EU document here!

The level 2 – RTS proposal was submitted to the European Commission early February 2021 and is expected to be in force on 1 January 2022.

The document can be read here.