Sustainable Finance Update

• International Platform on Sustainable Finance marks its one-year anniversary
• ESMA consults on the EU Taxonomy related disclosures
• IOSCO responds to the five reporting bodies

International Platform on Sustainable Finance – Catalyse global efforts to finance the green transition in times of recovery

The International Monetary Fund and the EU co-hosted a high-level event to mark the first anniversary of the International Platform on Sustainable Finance (IPSF).

During the event, the IPSF presented its first annual report. The document outlines the crucial role of sustainable finance in the context of the COVID-19 pandemic. Those first conclusions come at an important moment for policymakers, as authorities continue to address the impact of the crisis and work towards a global economic recovery based on environmentally sustainable, balanced and inclusive growth.

In particular, the report notes that: there is a critical need for coordinated actions to finance a more sustainable economy; markets for products that pursue sustainability objectives have grown massively in volume and diversity, but far from achieving the targets; the development of green taxonomies within the IPSF membership is nascent, but further potential is promising; several jurisdictions are developing standards and labels for sustainable financial products; environmental-related disclosures have improved considerably and a majority of IPSF members have already set mandatory regulatory requirements. Read more

EP Study on corporate social responsibility and its implementation into EU company law

A new study launched by the European Parliament (EP) examines to what extent EU’s legislation on Corporate Social Responsibility (CSR) have been implemented within selected Member States (France, Germany, Italy, the Netherlands, Poland and Spain). The study looks into whether CSR strategies are mandatory or voluntary and what enforcement mechanisms are foreseen. Due diligence requirements applicable to companies, including in their supply and subcontracting chain, are one of the focal points of the paper. This study will assist the EP Committee on legal affairs (JURI) in its work on comprehensively re-thinking CSR in the EU, by providing a number of recommendations to this end. Read more

ESMA consults on its draft advice on the EU Taxonomy related disclosures

ESMA seeks feedback on its draft advice to the Commission regarding reporting obligations under Art. 8 of the EU Taxonomy Regulation. As per Commission’s request, ESMA’s draft advice covers content, methodology and presentation of the key performance indicators that non-financial undertakings and asset managers are required to disclose under Article 8.

EBA and EIOPA were also invited to provide similar recommendations on the delegated act to be adopted within their respective remits. The three authorities are coordinating the opinions which will be delivered to the Commission by the end of February 2021. Read more

Commissioner McGuinness delivered a speech at Paris Climate Finance week

Commissioner McGuiness, responsible for Financial Affairs, during her speech noted the importance of sustainable finance in rebooting the European real economy. The Commissioner indicated that the renewed Sustainable Finance strategy is expected for early 2021. The strategy will deliver on three main areas: 1) strengthen the foundations for sustainable investment by creating an enabling ecosystem; 2) increase the opportunities for citizens, financial institutions and companies to have a positive impact on sustainability; 3) climate and environmental risks need to be managed and fully integrated into financial institutions and the system as whole. Commissioner also noted that the Commission will put forward a new initiative on sustainable corporate governance later in 2021. Read more

EBA consults on ESG risk management and supervision

EBA launched a consultation paper on Environmental, Social and Governance (ESG) risk management and supervision aiming to collect feedback for the preparation of its final report on the topic.

The authority remarked the need for incorporating ESG risks into institutions’ business strategies and proportionately including them into their internal governance arrangements. This could be done by setting ESG objectives, engaging with customers and considering the development of sustainable products.

EBA also proposed to improve the existing supervisory reviews with ESG factors and introduce a new area of analysis and evaluation of business models’ long-term resilience. Read more

European accounting enforcers to enhance transparency on COVID-19 impact

ESMA published its annual public statement on European Common Enforcement Priorities. The statement sets out the priorities that EEA corporate reporting enforcers will consider when examining the listed companies’ 2020 annual financial reports. The document also highlights the requirements to disclose non-financial information with regards to the impact of the Covid-19 on non-financial matters, social and employee issues, business model and value creation, risk related to climate change, and considerations on the application of the ESMA Guidelines on alternative performance measures in relation to Covid-19. Read more

Council reaches agreement on parts of the European Climate Law proposal

The Council reached agreement on a partial general approach on the proposed European climate law. The aim of the proposal is to set in law the objective of a climate-neutral EU by 2050, which was endorsed by the European Council in December 2019. The Council’s position is partial because it does not yet specify an updated 2030 greenhouse gas emission reduction target. This issue will be furtherly discussed in December’s meeting. Read more

Accountancy Europe joins as a partner the Sustainable, long-term investments & competitive European Industry Intergroup

In October, the European Parliament’s (EP) Intergroup on Sustainable, long-term investments & competitive European industry was officially launched. This Intergroup serves as a forum to exchange views between MEPs as well as with stakeholders. The Intergroup will play a key role in two interconnected areas: 1) the growing debate on sustainable finance, a greener MFF & EU budget, and the implementation of the Sustainable Europe Investment Plan in the context of the Green Deal 2) stimulate discussions on the conditions needed for the European industry to thrive and improve its competitiveness/leadership in the new green and digital economy. Read more

Commission seeks input on Sustainable Corporate Governance

The Commission launched a public consultation on Sustainable Corporate Governance on 26 October. The Commission indicated that this initiative is complementary to the review of the Non-Financial Reporting Directive (NFRD). Whilst the NFRD is based on incentives ‘to report’, the sustainable corporate governance initiative aims to introduce duties ‘to do’. Auditors and other assurance providers are particularly welcome to provide their views. The consultation will be open until 8 February 2021. Read more

JURI Committee discussed the initiative on Corporate Due Diligence and Corporate Sustainability

The European Parliament’s Committee on Legal Affairs (JURI) discussed the amendments tabled to two own-initiative draft reports – by MEP Lara Wolters (Socialist Dutch) and MEP Pascal Durand (Liberal French). Among the issues the MEPs debated were whether legislation should also cover non-EU companies, the inclusion of SMEs within the scope and whether due diligence should apply to the entire value chain.

The political groups are now working to reach agreement before the vote in the JURI Committee, scheduled for 16 November on the ‘Durand’ report and 2-3 December on the ‘Wolters’ report.

Commission’s Work Programme 2021: From strategy to delivery

The Commission adopted its Work Programme for 2021. The Commission foresees an effective delivery of actions concerning all the main political priorities. Above all: the importance of combining digital and green transition to recovery from the Covid-19 crisis, and to create a new sustainable and inclusive European economy. A legislative proposal for the establishment of an EU Green Bond Standard was pencilled in for Q2 2021. Read more

TCFD status report and consultation

The Task Force on Climate-related Financial Disclosures (TCFD) published its annual report. The report indicates that climate-related financial disclosures aligned with the TCFD recommendations has steadily increased. However, the report highlights the continuing need for progress in improving levels of TCFD-aligned disclosures, given the urgent demand for consistency and comparability in reporting.

Additionally, the TCFD invites stakeholders to express their views on   forward-looking climate metrics for financial firms by 27 January 2021. Read more

The United Nations sends recommendations to the EC on the forthcoming human rights and environmental due diligence legislation

The United Nations Working Group on the issue of human rights and transnational corporations and other business enterprises, in a letter to Commissioner Reynders, sets 10 recommendations for the EU as it develops the proposed Directive on “Human rights and environmental due diligence”.

Among others, the UN Working Group recommends that the Directive should:

• cover all EU undertakings and non-EU businesses which sell goods or services in the EU, including SMEs.
• go beyond reporting regimes and require meaningful processes and outcomes; a “comply or explain” approach is not sufficient.
• set out clear compliance monitoring and enforcement that facilitate access to effective justice and remedy.

B20 Policy Recommendations to the G20

B20 policy recommendations to G20 include, amongst others, developing a roadmap for international coordination of sustainable finance taxonomies and alignment of sustainable disclosure framework across all ESG considerations. Read more

IOSCO’s open response to the CDP-CDSG-GRI-IIRC-SASB open letter

IOSCO issued an open response to the CDP-CDSB-GRI-IIRC SASB open letter. IOSCO confirmed that they will help and collaborate with the CDP-CDSB-GRI-IIRC-SASB ‘coalition’ as well as the IFRS Foundation which has issued a consultation on sustainability reporting.

In addition, IOSCO highlighted that it expects these two initiatives to eventually come together and to address appropriately the content and governance of a comprehensive reporting system.

BlackRock supports a global approach to comprehensive reporting

BlackRock supports convergence to achieve a globally recognised and adopted approach to corporate reporting.

They agreed with the reference to ‘dynamic materiality’ by the joint statement of CDP-CDSB-GRI-IIRC-SASB and welcomed the IFRS Foundation consultation. Nonetheless, BlackRock noted that they will continue to advocate for TCFD and SASB aligned reporting until a global standard is established. Read more

IFRS Foundation Trustee Chair delivered a keynote at the UNCTAD’s on sustainability reporting

The chair of the IFRS Foundation Trustees Erkki Liikanen delivered a speech at the UNCTAD Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting highlighting the increasing importance of sustainability reporting and demands for: i) global standards addressing global issues ii) introducing the IFRS Foundation consultation. Read more