skip to Main Content
Head Office: +353 1 668 7684

The EU Commission published its action plan on sustainable finance in May 2018 as part of a strategy to integrate environmental, social and governance (“ESG”) considerations into its financial policy framework and mobilise finance for sustainable growth. Some of the key elements included in the action plan were:

  • A unified EU green classification system (“Taxonomy Regulation”)
  • Disclosures relating to sustainable investments (“Disclosures Regulation”)
  • New low-carbon benchmark indices
  • Integration of sustainability into risk management
  • Better advice to clients on sustainability.

On December 29th 2019, the Disclosures Regulation entered into force. The disclosure standards apply to all UCITS management companies (including self-managed investment companies), AIFMs and MiFID authorised investment firms, whether or not they label their financial products “green”.

This summary focuses on the Disclosures Regulation. Previously, ESG was an optional add on for investment firms and funds to consider but now with the Disclosures Regulation, it is embedded in the regulatory framework.

Disclosure Requirements on a Website

The information, which financial market participants including UCITS management companies and AIFMs must disclose on their websites, includes:

  • Their policies on the integration of sustainability risks in their investment decision-making process
  • Information on how their remuneration policies are consistent with the integration of sustainability risks
  • Information on the due diligence policies they use to consider the principal adverse impacts of investment decisions on sustainability factors
  • For financial products which promote ESG characteristics:
    • A description of the relevant ESG characteristics
    • Information on the methodologies used to assess, measure and monitor the ESG characteristics
    • Where an index is used as a reference benchmark for ESG characteristics, whether the index is consistent with those objectives.

Pre-contractual Disclosures

For AIFs and UCITS, a number of disclosures should be included in the prospectus including:

  • The manner in which sustainability risks are integrated into their investment decisions.
  • The results of an assessment of the likely impacts of sustainability risks on the financial products they make available
  • Where a financial product promotes ESG characteristics, the disclosures must include information on:
    • How those characteristics are met
    • Whether and how any benchmark index referred to, is consistent with those characteristics

Periodic Reports

Disclosure requirements in periodic reports (annual accounts) will also be required for financial products, which promote ESG characteristics.

Consultation Paper

On April 23rd 2020, the three European Supervisory Authorities – European Securities Markets Authority (“ESMA”), European Banking Authority (“EBA”) and European Insurance and Occupational Pension Authority (“EIOPA”), together the European Supervisory Authorities (“ESAs”) – issued a consultation paper seeking input on proposed ESG disclosure standards. The consultation is open until September 1st 2020.

The consultation paper includes draft Regulatory Technical Standards (“RTS”), i.e. binding standards that implement or supplement EU legislation and concrete guidance as to the implementation of the main provisions of the Disclosures Regulation. It provides guidance on the content, methodologies and presentation of the disclosures required.

Next Steps

The website and pre-contractual disclosures will apply from March 10th 2021. The periodic report disclosures will apply from January 1st 2022. The requirements set out in the consultation paper will be helpful for firms in their preparation for the March 10th 2021 deadline for compliance.

You can download your copy of ESG: EU Disclosures Regulation here

KB Associates Services

KB Associates provides a range of services to investment funds including:

  • The provision of UCITS management company/AIFM services
  • The provision of designated persons to perform UCITS business plan/AIFMD programme of activity functions.
  • The provision of operational and compliance services to both UCITS and AIFMD compliant structures.

If you would like to discuss this note or KB Associates’ services in general, please contact:

Back To Top