12. Sustainability Disclosure in the EU Financial Sector

European Commission, Action Plan: Financing Sustainable Growth, COM(2018) 97 final (8 March 2018), p. 2.

European Commission, Action Plan: Financing Sustainable Growth, COM(2018) 97 final (8 March 2018), p. 3.

European Commission, Action Plan: Financing Sustainable Growth, COM(2018) 97 final (8 March 2018), pp. 4–11.

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector [2019] OJ EU L 317/1, as amended by Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ EU L 198/13. References to Articles of Regulation (EU) 2019/2088 which did not result in amendments of the Sustainable Finance Disclosure Regulation itself, will be referred to as the ‘Taxonomy regulation’. A consolidated version of the Sustainable Finance Disclosure Regulation is available at https://​eur-lex.​europa.​eu/​legal-content/​EN/​TXT/​?​uri=​CELEX%3A02019R2088-20200712.

Art. 20 (2) SFDR. By way of derogation from Art. 20 (2) (i) Art. 4(6) and (7), Art. 8(3), Art. 9(5), Art. 10(2), Art. 11(4) and Art. 13(2) will apply from 29 December 2019 (these provisions all concern the ESAs’ power to draw up relevant RTS’s and the Commission’s power to adopt them); (ii) Art. 2a, 8(4), 9(6) and 11(5) will apply from 12 July 2020 (these provisions all concern the ESAs’ power to draw up relevant RTS’s and the Commission’s power to adopt them); (iii) Art. 8(2a) and 9(4a) will apply from 1 January 2022 or 1 January 2023, as applicable (these provisions concern information on the various ‘environmental objectives’); (iv) Art. 11(1) to (3) will apply from 1 January 2022 (these provisions concern transparency of the promotion of environmental or social characteristics and of ‘sustainable investments’ in periodic reports).

Art. 1 SFDR.

Art. 2(1) (a) read in conjunction with Art. 2(2) and Art. 2(3) SFDR.

Art. 2(1) (b) (investment firms as defined in Art. 2(5)) and (j) (credit institutions), both read in conjunction with Art. 2(6) SFDR. In practice, the following question has arisen. For portfolios, or other types of tailored financial products managed in accordance with mandates given by clients on a discretionary client-by-client basis, do the disclosure requirements in the Sustainable Finance Disclosure Regulation apply at the level of the portfolio only or can they apply at the level of standardised portfolio solutions? See further the letter dated 7 January 2021 from the joint ESAs to the European Commission (JC 2021 02).

Art. 2(1) (e) (alternative investment fund managers (AIFMs), as defined in Art. 2(4)) (g) (managers of venture capital funds, EuVECA) (h) (managers of social entrepreneurship funds, EuSEF) and (i) (a management company of an undertaking for collective investment in transferable securities, UCITS management companies, as defined in Art. 2(10)) SFDR. An ‘AIFM’ is further defined in Art. 2(4) SFDR with reference to Article 4(1)(b) of Directive 2011/61/EU (the Alternative Investment Fund Managers Directive (AIFMD)). Therefore, the SFDR applies to AIFMs in general by virtue of the reference to Article 4(1)(b) AIFMD. The following questions have arisen in practice. (i) Does the SFDR therefore apply to registered (sometimes referred to as sub-threshold) AIFMs referred to in Art. 3(2) AIFMD? (ii) Does SFDR apply to non-EU AIFMs, for example, when they market a sustainable EU Alternative Investment Fund under a National Private Placement Regime? See the letter dated 7 January 2021 from the joint ESAs to the European Commission (JC 2021 02).

Art. 2(11) (a) and (b) (insurance intermediaries as defined in Art. 2(20) and insurance undertakings as defined in Art. 2(2) providing insurance advice as defined in Art. 2(21) with regard to IBIPs as defined in Art. 2(3)) SFDR. NB: the Sustainable Finance Regulation does not apply to insurance intermediaries providing insurance advice with regard to IBIPs that employ fewer than three persons, irrespective of their legal form, including natural persons (Art. 17(1) SFDR). Member States may however decide (Member State option) to nevertheless apply the Sustainable Finance Disclosure Regulation in such cases (Art. 17(2) SFDR). Member States must notify the Commission and the ESAs of any such decision (Art. 17(3) SFDR).

Art. 2(11) (c) and (d) (credit institutions and investment firms as defined in Art. 2(5) providing investment advice as defined in Art. 2(16)) SFDR. NB: the Sustainable Finance Regulation does not apply to investment firms providing investment advice that employ fewer than three persons, irrespective of their legal form, including natural persons (Art. 17(1) SFDR). Member States may nevertheless decide (Member State option) to apply the Sustainable Finance Disclosure Regulation in such cases (Art. 17(2) SFDR). Member States must notify the Commission and the ESAs of any such decision (Art. 17(3) SFDR).

Art. 2(11) (e) and (f) (alternative investment fund managers (AIFMs) as defined in Art. 2(4) and UCITS management companies as defined in Art. 2(10) providing investment advice as defined in Art. 2(16)) SFDR.

Art. 2(12) (a) read in conjunction with Art. 2(6) SFDR.

Art. 2(12) (a) and (f) (alternative investment funds (AIFs) as defined in Art. 2(13) and UCITS as defined in Art. 2(13)) SFDR.

Art. 2(12) (c) read in conjunction with Art. 2(3) SFDR.

Art. 2(12) (d) and (e) (pension product as defined in Art. 2(8) and pension schemes as defined in Art. 2(14)) SFDR. NB: Member States may decide (Member State option) to apply the Sustainable Finance Disclosure Regulation to manufacturers of pension products operating ‘national social security schemes’ which are covered by Regulations (EC) No 883/2004 and (EC) No 987/2009. In such cases, manufacturers of pension products as referred to in Art. 2(1)(d) SFDR includes manufacturers of pension products operating national social security schemes and of pension products referred to in Art. 2(8) SFDR. In such case, the definition of pension product in Art. 2(8) SFDR is deemed to include pension products operating national social security schemes. See Art. 16(1) SFDR. Member States must notify the Commission and the ESAs of any decision taken pursuant to Art. 16(1) SFDR (Art. 16(2) SFDR).

Art. 2(9) SFDR.

Art. 2(22) SFDR.

Art. 2(24) SFDR.

Art. 2(17) SFDR.

But see Sect. 12.9.6.

Art. 2a(1) SFDR. The RTSs on the principle of ‘do no significant harm’ must be consistent with the RTSs on (a) the content (b) the methodologies and (c) the presentation in respect of the sustainability indicators in relation to the adverse impacts (Art. 2a(1) SFDR). See Sect. 12.3.3.1(iv), for a treatment of the RTSs on (a) the content (b) the methodologies and (c) the presentation in respect of the sustainability indicators in relation to the adverse impacts. See also Art. 2a(2) and Art. 8(4) SFDR. Power is delegated to the Commission to supplement the SFDR by adopting the relevant RTSs in accordance with Art. 10 to 14 of Regulations (EU) No 1093/2010 (EU) No 1094/2010 and (EU) No 1095/2010 (Art. 2a(3) and Art. 8(4) SFDR). On 23 April 2020, the ESAs published a consultation paper setting out the RTSs they propose in this regard: Joint Consultation Paper, ESG Disclosures, Draft regulatory technical standards with regard to the content, methodologies and presentation of disclosures pursuant to Article 2a, Article 4(6) and (7), Article 8(3), Article 9(5), Article 10(2) and Article 11(4) of Regulation (EU) 2019/2088 (JC 2020 16). Market parties could respond until 1 September 2020. The final report of the joint ESAs was published on 2 February 2021 (JC 2021 03).

Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ EU L 198/13 (‘Taxonomy regulation’). That Taxonomy Regulation is analysed in the contribution by C.V. Gortsos in this book.

Art. 9 Taxonomy regulation.

Art. 3, 10–17 and 19 Taxonomy regulation. See for the draft delegated regulation regarding the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to (a) climate change mitigation or (b) climate change adaptation, and for determining whether that economic activity causes no significant harm to any of the other environmental objectives (published on 20 November 2020): https://​ec.​europa.​eu/​info/​law/​better-regulation/​have-your-say/​initiatives/​12302-Climate-change-mitigation-and-adaptation-taxonomy#ISC_​WORKFLOW.

Art. 20 Taxonomy regulation. See for the tasks and composition of the Platform on Sustainable Finance: https://​ec.​europa.​eu/​info/​publications/​sustainable-finance-platform_​en.

See Art. 2(1)(17) SFDR, on which see Sect. 12.2.7.2.

See Art.17 Taxonomy regulation.

The term ‘undertaking’ is not defined in the Taxonomy Regulation. I assume the term includes ‘financial market participants’ and ‘financial advisers’ as defined in Art. 2(1) and 2(11) SFDR. See on the terms ‘financial market participants’ and ‘financial advisers’ Sects. 12.2.2 and 12.3.

Art. 18(1) Taxonomy Regulation.

Art. 18(2) Taxonomy Regulation read in conjunction with Art. 2(17) SFDR.

Art. 3 Taxonomy regulation.

‘Sustainability risk’ is defined as an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment (Art. 2(22) SFDR, see Sect. 12.2.5).

Art. 3(1) (financial market participants) and (2) (financial advisers) SFDR. Financial market participants that qualify as IORPs must publish and maintain the information referred to in Art. 3(1) in accordance with point (f) of Article 36(2) of Directive (EU) 2016/2341 (IORP Directive), see Art. 15(1) SFDR. Financial advisers that qualify as insurance intermediaries must communicate the information referred to in Art. 3(2) SFDR in accordance with Art. 23 of Directive (EU) 2016/97 (IDD), see Art. 15(2) SFDR.

Art. 12(1) (financial market participants) and (2) (financial advisers) SFDR.

‘Sustainability factors’ is defined as environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (Art. 2(24) SFDR, see Sect. 12.2.6).

Art. 4(1), opening words, and (a) SFDR. Financial market participants that qualify as IORPs must publish and maintain the information referred to in Art. 4(1), opening words, and (a) SFDR in accordance with point (f) of Article 36(2) of Directive (EU) 2016/2341 (IORP Directive), see Art. 15(1) SFDR.

See Art. 3 g (Engagement Policy) of Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies [2007] OJ EU L184/17, as amended by (1) Directive 2014/59/EU [2014] OJ EU L173/90 and (2) Directive (EU) 2017/828 [2017] OJ EU L131/1.

Art. 4(2) SFDR.

‘Sustainability factors’ is defined as environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (Art. 2(24) SFDR, see Sect. 12.2.6).

Art. (4)(1), opening words, and (b) SFDR. Financial market participants that qualify as IORPs must publish and maintain the information referred to in Art. 4(1), opening words, and (b) SFDR in accordance with point (f) of Article 36(2) of Directive (EU) 2016/2341 (IORP Directive), see Art. 15(1) SFDR.

‘Sustainability factors’ is defined as environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (Art. 2(24) SFDR, see Sect. 12.2.6).

As referred to in Article 3(7) of Directive 2013/34/EU.

Art. 4(3) and (4) SFDR. ‘Sustainability factors’ is defined as environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (Art. 2(24) SFDR, see Sect. 12.2.6). In practice, the following questions have arisen in this connection. (i) Must the calculation of the 500-employee threshold to the parent undertaking of a large group be applied to both EU and non-EU entities of the group without distinction as to the place of establishment of the group and/or subsidiary? (ii) Does the due diligence statement include impacts of the parent undertaking only or must it include the impacts of the group at a consolidated level? See the letter dated 7 January 2021 from the joint ESAs to the European Commission (JC 2021 02).

In accordance with Articles 10 to 14 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010.

But see Sect. 12.9.6.

The ESAs must, where relevant, seek input from the European Environment Agency and the Joint Research Centre of the European Commission, see Art. 4(6), second paragraph, SFDR.

In a similar vein: Securities and Markets Stakeholder Group, SMSG advice to the ESA’s Joint Consultation Paper on ESG Disclosures (draft regulatory technical standards with regard to the content, methodologies and presentation pursuant to Article 2a, Article 4(6) and (7), Article 8(3), Article 9(5), Article 10(2) and Article 11(4) of Regulation EU 2019/2088 (14 September 2020) (ESMA22-106-2858), pp. 3–4. See Position https://​www.​afm.​nl/​en/​nieuws/​2020/​december/​reguleer-aanbieders-duurzaamheidsdat​a.

‘Sustainability factors’ is defined as environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (Art. 2(24) SFDR, see Sect. 12.2.6).

Art. 4(5), opening words, and sub (a) SFDR. Financial advisers that qualify as insurance intermediaries must communicate the information referred to in Art. 4(5), opening words, and sub (a) SFDR in accordance with Art. 23 of Directive (EU) 2016/97 (IDD), see Art. 15(2) SFDR.

‘Sustainability factors’ is defined as environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (Art. 2(24) SFDR, see Sect. 12.2.6).

Art. 4(5), opening words, and sub (b) SFDR. Financial advisers that qualify as insurance intermediaries must communicate the information referred to in Art. 4(5), opening words, and sub (b) SFDR in accordance with Art. 23 of Directive (EU) 2016/97 (IDD), see Art. 15(2) SFDR.

‘Sustainability factors’ is defined as environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (Art. 2(24) SFDR, see Sect. 12.2.6).

‘Sustainability risk’ is defined as an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment (Art. 2(22) SFDR, see Sect. 12.2.5).

Art. 5(1) SFDR. Financial market participants that qualify as IORPs must publish and maintain the information referred to in Art. 5(1) SFDR in accordance with point (f) of Article 36(2) of Directive (EU) 2016/2341 (IORP Directive), see Art. 15(1) SFDR. Financial advisers that qualify as insurance intermediaries must communicate the information referred to in Art. 5(1) SFDR in accordance with Art. 23 of Directive (EU) 2016/97 (IDD), see Art. 15(2) SFDR.

In particular Directives 2009/76/EC (UCITS); 2009/138/EC (Solvency II); 2011/61/EU (AIFMD); 2013/36/EU (CRD IV); 2014/65/EU (MiFID II); (EU) 2016/97 (IDD); and (EU) 2016/2341 (IORPs), see Art. 5(2) SFDR.

Art. 12(1) (financial market participants) and (2) (financial advisers) SFDR.

‘Sustainability risk’ is defined as an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment (Art. 2(22) SFDR, see Sect. 12.2.5).

Ibid.

Art. 6(1), opening words, sub (a) and (b) (financial market participants) and Art. 6(2), opening words, sub (a) and (b) (financial advisers) SFDR. Financial market participants that qualify as IORPs must publish and maintain the information referred to in Art. 6(1), opening words, sub (a) and (b) SFDR in accordance with point (f) of Article 36(2) of Directive (EU) 2016/2341 (IORP Directive), see Art. 15(1) SFDR. Financial advisers that qualify as insurance intermediaries must communicate the information referred to in Art. 6(2), opening words, sub (a) and (b) SFDR in accordance with Art. 23 of Directive (EU) 2016/97 (IDD), see Art. 15(2) SFDR.

Art. 6(1), second paragraph (financial market participants) and Art. 6(2), second paragraph (financial advisers) SFDR. Financial market participants that qualify as IORPs must publish and maintain the information referred to in Art. 6(1), second paragraph SFDR in accordance with point (f) of Article 36(2) of Directive (EU) 2016/2341 (IORP Directive), see Art. 15(1) SFDR. Financial advisers that qualify as insurance intermediaries must communicate the information referred to in Art. 6(2), second paragraph, SFDR in accordance with Art. 23 of Directive (EU) 2016/97 (IDD), see Art. 15(2) SFDR.

See Art. 6(3) SFDR: for (a) AIFMs, in the disclosures to investors referred to in Art. 23(1) of Directive 2011/61/EU; (b) insurance undertakings, in the provision of information referred to in Art. 185(2) of Directive 2009/138/EC or, where relevant, in accordance with Art. 29(1) of Directive (EU) 2016/97; (c) IORPs, in the provision of information referred to in Art. 41 of Directive (EU) 2016/2341; (d) managers of qualifying venture capital funds, in the provision of information referred to in Art. 13(1) of Regulation (EU) No 345/2013; (e) managers of qualifying social entrepreneurship funds, in the provision of information referred to in Art. 14(1) of Regulation (EU) No 346/2013; (f) manufacturers of pension products, in writing in good time before a retail investor is bound by a contract relating to a pension product; (g) UCITS management companies, in the prospectus referred to in Article 69 of Directive 2009/65/EC; (h) investment firms which provide portfolio management or provide investment advice, in accordance with Art. 24 (4) of Directive 2014/65/EU; (i) credit institutions which provide portfolio management or provide investment advice, in accordance with Art. 24(4) of Directive 2014/65/EU; (j) insurance intermediaries and insurance undertakings which provide insurance advice with regard to IBIPs and for insurance intermediaries which provide insurance advice with regard to pension products exposed to market fluctuations, in accordance with Art. 29(1) of Directive (EU) 2016/97; (k) AIFMs of ELTIFs, in the prospectus referred to in Art. 23 of Regulation (EU) 2015/760; and (l) PEPP providers, in the PEPP key information document referred to in Art. 26 of Regulation (EU) 2019/1238.

See Sect. 12.3.3.1.

‘Sustainability factors’ is defined as environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (Art. 2(24) SFDR, see Sect. 12.2.6).

Ibid.

Art. 7(1), opening words, and sub (a) and sub (b) SFDR. Financial market participants that qualify as IORPs must publish and maintain the information referred to in Art. 7(1), opening words, sub (a) and (b) SFDR in accordance with point (f) of Article 36(2) of Directive (EU) 2016/2341 (IORP Directive), see Art. 15(1) SFDR.

See Sect. 12.3.3.1.

Art. 7(2) SFDR. Financial market participants that qualify as IORPs must publish and maintain the information referred to in Art. 7(2) SFDR in accordance with point (f) of Article 36(2) of Directive (EU) 2016/2341 (IORP Directive), see Art. 15(1) SFDR.

Art. 8(1), opening words, and sub (a) and (b) SFDR.

The following objectives are designated as ‘environmental objectives’: (a) climate change mitigation; (b) climate change adaptation; (c) the sustainable use and protection of water and marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and restoration of biodiversity and ecosystems (Art. 9 Taxonomy regulation), see Sect. 12.2.8.1.

See on this term Art. 3 Taxonomy Regulation, on which see Sect. 12.2.8.3.

As defined in Art. 3 Taxonomy Regulation, on which see Sect. 12.2.8.3.

Art. 6, paragraph 1, Taxonomy Regulation, read in conjunction with Art. 5 Taxonomy regulation. See, to the same effect, Art. 8(2a) SFDR.

The ‘do no significant harm’ principle is an element in the definition of ‘sustainable investment’ set out in Art. 1(17) SFDR and to be fleshed out in relevant RTSs. See Sects. 12.2.7.1 and 12.2.7.2.

‘Environmentally sustainable economic activities’ as defined in Art. 3 Taxonomy Regulation, on which see Sect. 12.2.8.3.

Art. 6, second paragraph onwards, Taxonomy Regulation. See, to the same effect, Art. 8(2a) SFDR.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

See Art. 9(1), (2) and (3) SFDR, discussed in Sects. 12.4.3.4(i) and (ii).

Art. 7 Taxonomy Regulation. In practice, several questions have arisen with regard to the application of Art. 8 SFDR. (i) Can the name of a product, which may include words like ‘sustainable’, ‘sustainability’ or ‘ESG’ be considered to qualify a product to be promoting an environmental or social characteristic or to be having sustainable investment as its objective? (ii) While a financial product to which Article 8 applies does not need to explicitly promote itself as targeting sustainable investments (within the meaning of Article 2(17) SFDR), would a reference to taking into account a sustainability factor or sustainability risk in the investment decision be sufficient for Article 8 to apply? If the answer is yes, how can financial market participants that disclose mandatory information according to Article 6(1) or Article 7(1) SFDR ensure that this is not automatically considered as ‘promoting environmental or social characteristics’. (iii) Must a product to which Article 8 applies invest a minimum share of its investments to attain its designated environmental or social characteristic in order to be considered to be promoting environmental or social characteristics? (iv) In the absence of active advertising of an environmental or social characteristic of the product, would an intrinsic characteristic of the product, such as a sectoral exclusion (e.g. tobacco) which is not advertised, also qualify as “promotion”? (v) In addition, would complying with a national legal obligation, which applies to the financial market participant, such as a ban on investment in cluster munitions, also bring the product into the scope of Article 8? See the letter dated 7 January 2021 from the joint ESAs to the European Commission (JC 2021 02).

Art. 8(2) SFDR.

But see Sect. 12.9.6.

Art. 8(3) and (4) SFDR. Power is delegated to the Commission to supplement the Sustainable Finance Disclosure Regulation by adopting the relevant RTSs in accordance with Articles 10 to 14 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010. On 23 April 2020, the ESAs published a consultation paper setting out the RTSs they propose in this regard: Joint Consultation Paper, ESG Disclosures, Draft regulatory technical standards with regard to the content, methodologies and presentation of disclosures pursuant to Article 2a, Article 4(6) and (7), Article 8(3), Article 9(5), Article 10(2) and Article 11(4) of Regulation (EU) 2019/2088 (JC 2020 16). Market parties could respond until 1 September 2020. The final report of the joint ESAs was published on 2 February 2021 (JC 2021 03). See also: ESAs Survey on templates for Environmental and/or Social financial products under SFDR (21 September 2020) (https://​ec.​europa.​eu/​eusurvey/​runner/​ESGtemplatesSFDR​), on which see the critical advice of the Securities and Markets Stakeholder Group: SMSG advice on the ESAs’ Survey on templates for Environmental and/or Social financial products under SFDR (23 October 2020) (ESMA22-106-2993), inter alia suggesting that the templates are too long (p. 1).

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

Art. 9(1) SFDR.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

Art. 9(2) SFDR.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

See on the definition of ‘sustainable investment’ Sect. 12.2.7.

The following objectives are designated as ‘environmental objectives’: (a) climate change mitigation; (b) climate change adaptation; (c) the sustainable use and protection of water and marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and restoration of biodiversity and ecosystems (Art. 9 Taxonomy regulation), see Sect. 12.2.8.1.

See on this term Art. 3 Taxonomy regulation, on which see Sect. 12.2.8.3.

As defined in Art. 3 Taxonomy regulation, on which see Sect. 12.2.8.3.

Art. 9(4a) SFDR read in conjunction with Art. 5 Taxonomy regulation.

See Art. 8(1) SFDR, discussed in Sect. 12.4.3.3(i).

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

‘Environmentally sustainable economic activities’ as defined in Art. 3 Taxonomy regulation, on which see Sect. 12.2.8.3.

Art. 7 Taxonomy Regulation. In practice, several questions have arisen with regard to the application of Art. 9 SFDR. (i) Must a product to which Article 9(1), (2) or (3) SFDR applies only invest in sustainable investments as defined in Article 2(17) SFDR? If not, is a minimum share of sustainable investments required (or would there be a maximum limit to the share of “other” investments)? (ii) Where an EU Climate Transition Benchmark (EU CTB) or EU Paris-aligned Benchmark (EU PAB) exists, is it necessary for a product to track an EU PAB or an EU CTB on a passive basis for Article 9(3) SFDR to apply to it? (iii) If the questions above are answered in the affirmative and if the minimum standards of an EU PAB or an EU CTB do not require the index components to be sustainable investments, can the product fall within the scope of Article 9(3) SFDR? See the letter dated 7 January 2021 from the joint ESAs to the European Commission (JC 2021 02).

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

Art. 9(3), first paragraph, SFDR.

See Art. 3(1)(23a) Regulation (EU) 2016/1011.

See Art. 3(1)(23b) Regulation (EU) 2016/1011.

Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (OJ L 171, 29.6.2016, p. 1).

Art. 9(3), second paragraph, SFDR.

Art. 9(4) SFDR.

But see Sect. 12.9.6.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

Art. 9(5) and (6) SFDR. Power is delegated to the Commission to supplement the Sustainable Finance Disclosure Regulation by adopting the relevant RTSs in accordance with Articles 10 to 14 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010. On 23 April 2020, the ESAs published a consultation paper setting out the RTSs they propose in this regard: Joint Consultation Paper, ESG Disclosures, Draft regulatory technical standards with regard to the content, methodologies and presentation of disclosures pursuant to Article 2a, Article 4(6) and (7), Article 8(3), Article 9(5), Article 10(2) and Article 11(4) of Regulation (EU) 2019/2088 (JC 2020 16). Market parties could respond until 1 September 2020. The final report of the joint ESAs was published on 2 February 2021 (JC 2021 03). See also: ESAs Survey on templates for Environmental and/or Social financial products under SFDR (https://​ec.​europa.​eu/​eusurvey/​runner/​ESGtemplatesSFDR​).

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

Art. 10(1), first paragraph, SFDR. Financial market participants that qualify as IORPs must publish and maintain the information referred to in Art. 10(1), first subparagraph, SFDR in accordance with point (f) of Article 36(2) of Directive (EU) 2016/2341 (IORP Directive), see Art. 15(1) SFDR. According to Art. 15(2) SFDR, even though insurance intermediaries do not qualify as financial market participants (but as financial advisers), they must communicate the information referred to in Art. 10(1), first subparagraph, SFDR in accordance with Art. 23 of Directive (EU) 2016/97 (IDD).

Art. 12(1) SFDR.

Art. 10(1), second paragraph, SFDR.

But see Sect. 12.9.6.

See Art. 11(2) SFDR.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

See Art. 8(1) SFDR, discussed in Sect. 12.4.2.3(i).

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

The following objectives are designated as ‘environmental objectives’: (a) climate change mitigation; (b) climate change adaptation; (c) the sustainable use and protection of water and marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and restoration of biodiversity and ecosystems (Art. 9 Taxonomy Regulation), see Sect. 12.2.7.

See on this term Art. 3 Taxonomy Regulation, on which see Sect. 12.2.8.3.

As defined in Art. 3 Taxonomy Regulation, on which see Sect. 12.2.8.3.

The ‘do no significant harm’ principle is an element in the definition of ‘sustainable investment’ set out in Art. 1(17) SFDR and to be fleshed out in relevant RTSs. See Sects. 12.2.7.1 and 12.2.7.2.

As defined in Art. 3 Taxonomy Regulation, on which see Sect. 12.2.8.3.

Art. 11(1), first paragraph, SFDR, read in conjunction with Art. 5 and 6 Taxonomy Regulation. Financial market participants may use the information in management reports in accordance with Article 19 of Directive 2013/34/EU or the information in non‐financial statements in accordance with Article 19a of that Directive where appropriate (Art. 11(1), second paragraph, SFDR).

See Art. 8(1) SFDR, discussed in Sect. 12.4.2.3(i).

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

See Art. 9(1), (2) and (3) SFDR, discussed in Sects. 12.4.3.4(i) and (ii) above.

As defined in Art. 3 Taxonomy Regulation, on which see Sect. 12.2.8.3.

Art. 7 Taxonomy Regulation.

But see Sect. 12.9.6.

Art. 11(4) and (5) SFDR. Power is delegated to the Commission to supplement the Sustainable Finance Disclosure Regulation by adopting the relevant RTSs in accordance with Articles 10 to 14 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010. On 23 April 2020, the ESAs published a consultation paper setting out the RTSs they propose in this regard: Joint Consultation Paper, ESG Disclosures, Draft regulatory technical standards with regard to the content, methodologies and presentation of disclosures pursuant to Article 2a, Article 4(6) and (7), Article 8(3), Article 9(5), Article 10(2) and Article 11(4) of Regulation (EU) 2019/2088 (JC 2020 16). Market parties could respond until 1 September 2020. The final report of the joint ESAs was published on 2 February 2021 (JC 2021 03). See also: ESAs Survey on templates for Environmental and/or Social financial products under SFDR (https://​ec.​europa.​eu/​eusurvey/​runner/​ESGtemplatesSFDR​).

See Art. 11(2) SFDR: (a) for AIFMs, in the annual report referred to in Article 22 of Directive 2011/61/EU; (b) for insurance undertakings, annually in writing in accordance with Article 185(6) of Directive 2009/138/EC; (c) for IORPs, in the annual report referred to in Article 29 of Directive (EU) 2016/2341; (d) for managers of qualifying venture capital funds, in the annual report referred to in Article 12 of Regulation (EU) No 345/2013; (e) for managers of qualifying social entrepreneurship funds, in the annual report referred to in Article 13 of Regulation (EU) No 346/2013; (f) for manufacturers of pension products, in writing in the annual report or in a report in accordance with national law; (g) for UCITS management companies, in the annual report referred to in Article 69 of Directive 2009/65/EC; (h) for investment firms which provide portfolio management, in a periodic report as referred to in Article 25(6) of Directive 2014/65/EU; (i) for credit institutions which provide portfolio management, in a periodic report as referred to in Article 25(6) of Directive 2014/65/EU; and (j) for PEPP providers, in the PEPP Benefit Statement referred to in Article 36 of Regulation (EU) 2019/1238.

Directive 2009/65/EC (UCITS Directive); Directive 2014/65/EU (MiFID II Directive); Directive (EU) 2016/97 (IDD Directive); Regulation (EU) No 1286/2014 (PRIIPs Regulation).

Art. 13(1) SFDR.

‘Sustainable investment’ is defined in Art. 2(17) SFDR, see Sect. 12.2.7.

Art. 13(2), first paragraph, SFDR. Power is delegated to the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010, see Art. 13(2), second paragraph, SFDR.

Art. 14(1) SFDR.

Art. 14(2) SFDR.

See Art. 16(1) (on which see footnote 12 above) and 17(2) (on which see footnotes 13 and 14 above) SFDR.

See Art. 17(1) SFDR (on which see footnotes 13 and 14).

See Sects. 12.3.3.1, 12.3.2 and 12.4.3.2.

With ‘level 3’, I mean to refer to the ESAs powers to (i) develop formally non-binding ‘soft law’ instruments such as recommendations and guidelines and (ii) conduct peer reviews comparing regulatory practices to ensure consistent application of the rules adopted at levels 1 and 2.

See the Commission’s letter to the ESAs dated 20 October 2020 (Ref. Ares(2020)5678036) (available at https://​www.​esma.​europa.​eu/​sites/​default/​files/​library/​eba_​bs_​2020_​633_​letter_​to_​the_​esas_​on_​sfdr.​pdf), at p. 2.

JC 2021 03.

JC 2021 06.

That there are many questions among financial market participants and financial advisers about the proper meaning of all kinds of concepts used in the SFDR is evident from the letter dated 7 January 2021 from the joint ESAs to the European Commission (JC 2021 02).

‘TFEU’ stands for ‘Treaty on the Functioning of the European Union’.

See Art. 2(1)(17) SFDR, on which see Sect. 12.2.7.2.

See Art.17 Taxonomy regulation.

See Sect. 12.2.8.2.

In a similar vein: Securities and Markets Stakeholder Group, SMSG advice to the ESA’s Joint Consultation Paper on ESG Disclosures (draft regulatory technical standards with regard to the content, methodologies and presentation pursuant to Article 2a, Article 4(6) and (7), Article 8(3), Article 9(5), Article 10(2) and Article 11(4) of Regulation EU 2019/2088 (14 September 2020) (ESMA22-106-2858), pp. 3–4. See also Sect. 12.3.3.1 (v).

See their letter to DG FISMA dated 9 June 2020 (ref: HG/EB/20-024), at p. 2 (downloadable at https://​www.​efama.​org).

See the most recent version of the CMU Action Plan: COM(2020) 590 final (24 September 2020), Action 1.

See Position Paper: Call for a European Regulation for the provision of ESG data, ratings, and related services (https://​www.​afm.​nl/​en/​nieuws/​2020/​december/​reguleer-aanbieders-duurzaamheidsdat​a). See Daniel Cash, ‘Calls for ESG Rating Agency Regulation Grows Louder in Europe, But Could It Actually Save the Industry?’ (https://​financialregulat​ionmatters.​blogspot.​com/​2020/​12/​calls-for-esg-rating-agency-regulation.​html).

See ESMA’s letter to DG FISMA dated 28 January 2021 (ESMA30-379-423).

See Sect. 12.8.

Art. 14(2) SFDR, on which see Sect. 12.8.

See the most recent version of the CMU Action Plan: COM(2020) 590 final (24 September 2020) at Action 16: ‘The Commission will (…) consider proposing measures for stronger supervisory coordination or direct supervision by the European Supervisory Authorities’.

See COM(2017) 536 final (20 September 2017) (certain collective investment schemes and certain prospectuses); COM(2018) 113 final (8 March 2018) (crowdfunding service providers).

See COM(2017) 343 final (29 June 2017).

See: D. Busch, The private law effect of MiFID: Genil and Beyond, European Review of Contract Law 2017/1, pp. 70–93; D. Busch, The private law effect of the EU market abuse regulation, Capital Markets Law Journal 2019/3, pp. 296–319; D. Busch, The influence of the EU prospectus rules on private law, Capital Markets Law Journal 2020/4 (all with further references, also to the relevant decisions from the Court of Justice of the European Union).

See B. Bierens, Hoofdstuk 6: De bancaire zorgplicht, klimaatverandering en het Europese ‘Actieplan: duurzame groei financieren’, in: D. Busch et al. (eds), Zorgplicht in de financiële sector, Kluwer, Deventer 2020, § 2.4. See more generally on the phenomenon of supreme courts giving retroactive effect to regulatory law through the backdoor of broad private law concepts: D. Busch, ‘The Future of the Special Duty of Care in the Dutch Financial Sector’ (EBI WP No. 63) (https://​papers.​ssrn.​com/​sol3/​papers.​cfm?​abstract_​id=​3586931), Sect. 12.5.4 (iii).

Art. 14(1) SFDR.

See the Green Deal presented by the Commission on 10 December 2019 (COM (2019) 640 final) and the proposal dated 4 March 2020 for a ‘European Climate Law’ (COM (2020)80 final). See for the Sustainable Finance Action Plan: European Commission, Action Plan: Financing Sustainable Growth, COM(2018) 97 final (8 March 2018); for the present position, see https://​ec.​europa.​eu/​info/​business-economy-euro/​banking-and-finance/​sustainable-finance_​nl. Cf. V.P.G. de Serière, Idealism or realistic approaches? Regulatory possibilities to require financial institutions to more substantially contribute to achieving climate goals? An overview, Journal of International Banking Law and Regulation 2020/3, pp. 94–106.

See https://​www.​blackrock.​com/​corporate/​literature/​publication/​blk-sustainability-mission-statement-web.​pdf and https://​www.​statestreet.​com/​values.​html.

See https://​www.​whitehouse.​gov/​briefing-room/​statements-releases/​2021/​01/​20/​paris-climate-agreement/​. Cf. also the Public Statement of John Coates (acting director division of corporation finance, U.S. Securities and Exchange Commission, SEC) dated 11 March 2021 ‘ESG disclosure – keeping pace with developments affecting investors, public companies and the capital markets’ (https://​www.​sec.​gov/​news/​public-statement/​coates-esg-disclosure-keeping-pace-031121).