ESG disclosures requirements for financial market stakeholders and the impact of COP26

BUSINESS UPDATES

By Stella Koukounis

Environmental, Social Governance (ESG) has been dominating CEO’s agenda in November, driven also by the recent UN COP26 Climate Change conference in Glasgow, Scotland, which ended on 12 November 2021, with markets highly anticipating its outcome.

In March 2018, the EU Commission published the Action Plan on Financing Sustainable Growth, a step prior to the publication of the EU Regulation that trigger an EU-wide focus on sustainability-related disclosures. The EU Regulation 2019/2088 was published on 9 December 2019 in the Official Journal of the EU (the “Sustainable Disclosure Regulation”).

The aim of the Sustainable Disclosure Regulation is to enhance transparency on how financial market stakeholders and experts, evaluate sustainability risks when making investment decisions. An environmental, social or governance condition that could have a material negative impact on the value of an investment, represents a sustainability risk.

The publication of the Sustainable Disclosure Regulation urged stakeholders to coordinate the manner in which disclosures will be made, to define disclosing parties and to gather comparative metrics so that a sustainable finance strategy can be adopted across regulated entities within the EU.

  • Who does the Sustainable Disclosure Regulation apply to?

All financial market stakeholders and participants, including, AIFMs, UCITs management companies, investment firms, insurance and credit institutions providing portfolio management, as well as to financial advisers providing investment and/or insurance advice.

  • What does the Sustainable Disclosure Regulation require financial market stakeholders to do?

To document the manner in which sustainability risks are considered when making investment decisions or granting insurance advice. To ensure that the potential impact of sustainable risks on the returns of financial products they invest in or promote, is considered. To record how sustainability risks are integrated in their remuneration policies and how their sustainability strategy is incorporates consideration of adverse impacts of their investment decisions.

These considerations are required to be documented in pre-contractual documentation, prospectuses, marketing material, investor factsheets, annual reports and financial stakeholders’ websites.

  • What is the European Single Access Point?

ESAP represents the single access disclosure database currently being developed where ESG information can be disclosed by stakeholders and shareholders alike. The aim is for the disclosed information to be digitally tagged and machine readable to minimize maintenance effort.

  • What key announcement was made by IOSCO and IFRS following COP26 in Glasgow?

Ms. Ashley Alder, Chairman of the International Organisation of Securities Commission, based in Madrid Spain, regulating the world’s securities and futures markets, speaking at COP26 welcomed the publication by the International Financial Reporting Standards Foundation of the prototype for the Climate Disclosure Standard to be finalised in 2022. The aim is for the climate disclosure standard to be endorsed before the end of 2022, so that it can form a practical and effective global baseline for climate disclosures to financial markets across the globe.

For more information on how the Sustainability Disclosure Regulation may affect your obligations to disclose as a financial markets stakeholder or shareholder feel free to speak to Klelia Karageorgiadou and Stella Koukounis at contact@solsiduslaw.com


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