On 15 March 2021, the European Supervisory Authorities (“ESAs”) published a joint consultation (“JC”) paper on Taxonomy-related sustainability disclosures on new regulatory technical standards (“RTS”) regarding content and presentation of sustainability disclosures under Articles 8(4), 9(6) and 11(5) of the Sustainable Finance Disclosure Regulation (“SFDR”) inviting stakeholders to respond to proposed changes integrating Taxonomy considerations to the SFDR regulatory technical standards (“SFDR RTS”).
The SFDR provides detailed requirements for pre-contractual and periodic report disclosures of products promoting environmental or social characteristics and products having a sustainable investment objective. For more information on the SFDR RTS, please refer to BSP’s Sustainability update of 15 March 2021. Regulation (EU) 2020/855 (the “Taxonomy Regulation”) amended the SFDR and required that the ESAs develop additional pre-contractual and periodic disclosure requirements for products investing in economic activities that contribute to an environmental investment objective. For more information on the amendments brought about by the Taxonomy Regulation, we refer to BSP Sustainable Finance Insight Series number 7 & 8.
The central objective of the JC is to consolidate two sets of RTS: the existing draft SFDR RTS and the taxonomy-related RTS.
NEW DISCLOSURE REQUIREMENTS
The main disclosure requirements foreseen by the JC relating to taxonomy are to provide precise information on the environmental objectives to which the investment products contribute, as well as quantify the extent to which activities financed by the product are aligned with the taxonomy. The requirements on alignment reporting may be summarized as follows:
- Graphical representation of taxonomy alignment ;
- Systematic and consistent use of key performance indicators (KPI) to calculate taxonomy alignment of investee companies that are non-financial undertakings;
- Statement of activities funded by the product labelled as environmentally sustainable.
In addition, the ESAs provide standardized templates for the pre-contractual and periodic disclosures in the annexes to the JC paper.
ENTRY IN FORCE OF THE RTS
The deadline for submitting comments was 12 May 2021. The draft taxonomy-related RTS are being finalised for submission to the European Commission and are expected to enter into force at the dates foreseen in the drafts.
The JC foresees two dates of entry into force. The taxonomy-related RTS shall apply from 1 January 2022, except for regulations on reporting of value chain green house gas emissions, which apply from 1 January 2023.
The SFDR RTS will enter into force from 1 January 2022 in respect of the climate change mitigation and climate change adaptation environmental objectives.
The SFDR RTS will enter into force from 1 January 2023 in respect of the sustainable use and protection of water and marine resources, circular economy, pollution prevention and control and protection and restoration of biodiversity and ecosystems environmental objectives.