guide to the new regulatory framework
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guide to the new
regulatory framework
The 2015 Paris Agreement and the 2030 UN Agenda for Sustainable Development have prompted the European legislator to rethink the role of finance with some main interventions:
While some of the measures are already in place, such as the adoption of the new sustainability benchmarks and the SFDR level 1 from 10 March 2021, the next years will be characterized by several deadlines that will oblige financial market participants to adapt in full to the new regulations.
TASSONOMIA EUROPEA
SUSTAINABILITY BENCHMARK
INTEGRAZIONE DI CONSULENZA E SOSTENIBILITà
VOTING POLICY
THE CALENDAR
(Environmental, Social, Governance) information -Disclosure of sustainability risks and of sustainable investment (Sustainable Finance Disclosure Regulation or SFDR) (1)
Shared system of definition and classification of sustainable economic activities (Regulation on the Taxonomy) (2)
Creation of two new benchmark categories with low-carbon emissions (3)
Amendments to the Markets in Financial Instruments Directive "MiFID II" and the Insurance Distribution Directivee "IDD"
with greater responsibilities for shareholders and active managers
1.Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability reporting in the financial services sector. 2.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. 3.Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU climate transition benchmarks, the EU-Paris aligned Benchmarks and sustainability-related disclosures for benchmarks
EUROPEAN TAXONOMY
DISCLOSE ESG INFORMATION
SUSTAINABILITY IN ADVISORY SERVICES
TOWARDS a greener europe
of the new regulatory framework
FIND OUT MORE
TOWARDS A GREENER EUROPE
SFDR : DISCLOSE ESG INFORMATION
MIFID II AND IDD UPDATES
SRD II : VOTING POLICIES
OBBLIGHI INFORMATIVI SUGLI INVESTIMENTI
The aim of the SFDR regulation is to establish a pan-European framework to facilitate sustainable investments and providing a harmonised approach to transparency requirements for investors regarding sustainable investments in the financial services sector of the European Economic Space. The SFDR level 1 came into effect on 10 March 2021, while the level 2 will be effective from January 2023. The SFDR regulation defines "harmonised rules for the financial market participants and financial advisors on transparency with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability related information with respect to financial products."
Financial market participants and financial advisors will have to publish on their websites information about their policies to integrate sustainability risks into their decision-making processes. Remuneration policies will also need to be made public and market participants will have to explain how those policies are consistent with the integration of sustainability risks. Furthermore, financial market participants must indicate in pre-contractual information (UCITS Prospectus) how sustainability risks are integrated into their investment decisions and should communicate how they assessed the likely impacts of sustainability risks on the performance of financial products (article 6). If financial market participants do not consider sustainability risks to be applicable, a clear and concise explanation must be provided. Financial products can be classified on the base of the fact they include ESG criteria in their risk integration, promote ESG characteristics or have sustainable investments as part of their objective. The legislation indicates a set of additional information to be included in pre-contractual documentation and periodic reports. Article 6 financial products: include basic ESG criteria Article 8 financial products: promote ES characteristics Article 9 financial products: promote sustainable investment as one of its objectives
SUSTAINABILITY RISK
environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact in the value of the investment (wording of the regulation)
AN OVERVIEW OF THE SFDR CATEGORIES
MIN
MAX
ART.
9
8
6
Sustainable investment objective
Promotes ESG characteristics
Basic ESG criteria
No ESG criteria applied
ESG in the core product
Information on how ESG characteristics are respected. Where there is a benchmark, information on whether and how that benchmark is consistent with those features.
ARTICLE 8
ARTICLE 9
Where there is a benchmark, it shall be indicated how the designated index is in line with that target and why and how the designated index differs from a general market index. In the absence of an index, it should be explained how the sustainable investment target is achieved. If a financial product has the objective of low-carbon exposure with a view to achieving the long-term objectives for combating global warming as set out in the Paris Agreement, this shall be stated.
4. UCITS, portfolio management, alternative investment funds, pension products or schemes
SFDR: SUSTAINABILITY RISKS IN THE SPOTLIGHT
AMUNDI FUNDS
No ESG criteria
(Sustainability risks not integrated in the product)
(Integration of the risks)
AND CATEGORIES 8 AND 9 PROVIDE FOR SPECIFIC INFORMATION REQUIREMENTS AS FROM 10 MARCH
The objective of the Taxonomy Regulation is to develop a clear framework to promote sustainable investments.
GREENWASHING
The practice of some companies or organisations to gain an unfair competitive advantage based on misleading or false claims in order to present as environmentally friendly a financial product that does not actually meet basic environmental standards.
WHEN WILL THE taxonomy BE OPERATIONAL?
The Taxonomy Regulation also brought in the creation of the International Platform on Sustainable Finance(7), a permanent group of public and private sector experts to develop sustainable finance policies and tools.
A first delegated act for climate change adaptation and mitigation objectives was published in the Official Journal of the EU and it is applicable since January 2022. A second delegated act for the other objectives will be published in 2022.
To be eco-compatible, an activity must meet the following criteria:
contribute positively to at least one of the six environmental objectives
Climate change mitigation
TAXONOMY: CHECKMAtE TO greenwashing
Climate change adaptation
The sustainable use and protection of water and marine resources
The transition to a circular economy
Pollution prevention and control
The protection and restoration of biodiversity and ecosystems
do not produce negative impacts on any other objective
be carried out in compliance with minimum social guarantees (for example, those provided for in the OECD guidelines and UN documents)
5. https://ec.europa.eu/clima/eu-action/climate-strategiestargets/2050-long-term-strategy_en 6. https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en 7 https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/internationalplatform-sustainable-finance_en 8 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022R1214
WHEN WILL THE TAXONOMY BE OPERATIONAL?
The first delegated act on climate change mitigation and adaptation approved by the EU entered into force on January 1, 2022. In February 2022(8), the European Commision presented a complementary act on climate which, subject to objections from the co-legislators, will apply from January 1, 2023.
The taxonomy Regulation establishes six environmental and climate objectives:
It establishes “green” European criteria for investors, which is the key to raising more public and private funding to allow the EU to become “carbon neutral” by 2050(5), as set out in the European Green Deal(6), and to prevent “greenwashing”. The Taxonomy Regulation establishes the first system in the world to classify sustainable economic activities, establishing criteria for determining whether an economic activity can be considered sustainable.
5. https://ec.europa.eu/clima/eu-action/climate-strategiestargets/ 2050-long-term-strategy_en 6. https://ec.europa.eu/info/strategy/priorities-2019-2024/ european-green-deal_en 7 https://ec.europa.eu/info/business-economy-euro/ banking-and-finance/sustainable-finance/internationalplatform- sustainable-finance_en 8 https://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=CELEX%3A32021R2139
One of the legislator’s initiatives to ensure greater clarity and transparency for investors is the introduction of two new categories of low-carbon benchmarks with similar objectives but different target levels:
aiming to reduce the carbon footprint of a standard portfolio. More precisely this index type should be defined by taking into account the companies that follow a scientific and measurable decarbonisation objective; which takes into account the long-term global warming goal determined in the Paris Agreement
EU Climate Transition Benchmark
EU Paris-aligned Benchmark
aiming to select only securities that contribute to the achievement of the 2°C objective established in the Paris Agreement on climate change
CERTAIN MINIMUM REQUIREMENTS FOR THESE INDEX CATEGORIES HAVE ALSO BEEN DEFINED IN 2020
With the Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020, the legislator deemed necessary to define minimum requirements for the two indices including a list of companies to be excluded, such as those involved in controversial weapons or those active in the cultivation and production of tobacco.
This also requires administrators of all benchmarks to indicate the way in which environmental, social and governance factors (ESG factors) are reflected in each benchmark or family of benchmarks they provide and publish and which ESG factors they have taken into account in developing their benchmark methodologies.
5. Commission Delegated Regulation (EU) 2020/1816 of 17 July 2020 6. Commission Delegated Regulation (EU) 2020/1817 of 17 July 2020
E
S
G
TWO NEW BENCHMARKS TO HELP INVESTORS IN THEIR CHOICES
puntano a selezionare solo gli elementi che contribuiscono al raggiungimento dell’obiettivo dei 2 °C stabilito nell'Accordo di Parigi sui cambiamenti climatici
ESMA (European Securities and Markets Authority)(9) also contributed to the sustainable finance issue by proposing to integrate clients’ preferences on sustainability when they are selecting financial instruments. Intermediaries are called upon to review client profiling processes, provide advice and assessment of adequacy, integrating them with E and S factors. The process of collecting information from clients must provide, in addition to what is already provided for by current legislation, for the collection of the clients’ preferences in the ESG spectrum. Therefore the assessment of financial objectives can be extended to include environmental, social and governance preferences. This information will be useful to complement the advisory service defined by the intermediaries in order to carry out a commercial proposition which is consistent with the investment objectives declared by their clients. They will also need to review the adequacy policies with the introduction of further controls to verify that the investment product being advised is in line with the ESG preferences declared by the client in the profiling phase (revision of the MIFID II Directive).
9. Established with effect from 1 January 2011 with EU Regulation 1095/2010, ESMA is a European supervisory authority that brings together the national financial market supervisory bodies of each EU Member State. Together with the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), it is an integral part of the European Supervisory System.
Investors' ESG preferences matter
On 3 September 2020, the SRD II, Directive on the rights of shareholders issued by the European Union ("Shareholder Rights Directive II" or "SRD II") came into force with the following objectives:
INVOLVE SHAREHOLDERS
encouraging them to participate more actively in corporate governance and giving them greater opportunities to control remuneration policy and transactions with related parties, also cooperating together
THE SHAREHOLDER RIGHTS DIRECTIVE II: AN OPPORTUNITY FOR ENGAGEMENT
STRENGHTENING THE TRANSPARENCY OF COMPANIES
by providing more information about their corporate governance, to investors and in general, and allowing them to be able to know the identity of their shareholders and the voting policies of their institutional investors, so as to allow a more profitable dialogue on corporate governance issues
FOSTER BUSINESS GROWTH
and competitiveness
The Directive lays down obligations for active managers to communicate how they have exercised their voting rights; or to explain why they did not exercise them (comply or explain engagement). Another objective of the Directive is to promote long-term participation, far from the short-term strategy that forces companies to achieve perfect quarterly targets.
the timetable of the new regulatory framework
IMPORTANT INFORMATION This material is for professional clients only. It is provided only for information purposes, is not a recommendation, financial analysis or advice, and does not constitute a solicitation, invitation or offer to buy or sell any security, fund units or services. Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of [DATE]. The views expressed are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material is based on sources that Amundi considers to be reliable at the time of publication. Data, opinions and analysis may be changed without notice. Amundi accepts no liability whatsoever, whether direct or indirect, that may arise from the use of information contained in this material. Amundi can in no way be held responsible for any decision or investment made on the basis of information contained in this material. Edition: February 2021
SFDR
EU TAXONOMY
CLIMATE BENCHMARK
CHANGES TO EU MIFID II, EU UCITS AND AIFMD
SRD II
2019 2024
2019
2020
2021
2022
2023
2024
December 30 By this date all products need to disclose in their pre-contractual documents if and how they consider PAI in their investment decisions
March 10 SFDR enters into force
January 1 Beginning of data collection for the first reference period for the PAI reporting
June 30 SFDR statement. Qualitative disclosure on PAI consideration at entity level
June 30 First annual quantitative PAI reporting at entity level (as per the RTS template)
June 30 Date by which the PAI report at entity level needs to include a report on historical, year-on-year comparisons with previous reference periods.