Sustainable finance: latest developments and proposals

• Almost immediately after announcing in April that it had adopted the RTS supplementing the Sustainable Finance Disclosure Regulation (SFDR), the European Commission invited the ESAs to propose amendments to the RTS on financial product exposures to gas and nuclear activities (by 30 September 2022) and on Principal Adverse Impact (PAI), as well as on transparency of financial products, in particular with regard to decarbonisation targets (within 12 months).
• On May 16, the ESAs submitted questions to the EC regarding the interpretation of certain obligations in the SFDR and the Taxonomy Regulation, namely disclosures of PAI at the entity and product level, obligations of financial advisers when providing advice under MiFID, as well as transparency of risk integration and rules for products that are no longer available and good governance practices.
• On May 25, the EC responses were published, clarifying the consideration of PAIs at the product level when choosing not to consider PAIs at the entity level and the application of the SFDR and taxonomy-related disclosure rules to financial products in various scenarios.

While the RTS are still under review by the European co-legislators and Financial Market Participants (FMPs) still face challenges in complying with the provisions of the SFDR, the EC has already given a clear signal that the RTS will most likely evolve, and FMPs are expected to secure additional efforts and resources to accommodate the additional requirements. 

In parallel to the developments on the SFDR, the ECON Committee published the adopted report on the proposed Regulation on European Green Bonds, including the extension of the framework to apply minimum sustainability disclosure requirements for other bonds marketed as sustainable or sustainability-related bonds in the EU, requirements for European green bonds used for securitisation purposes or mandatory disclosure of transition plans for issuers subject to the Corporate Sustainability Reporting Directive.

While the SFDR and the harmonisation of standards and disclosure rules are the highest priority issues at the moment, other upcoming proposals will pose a real challenge to financial (and non-financial) companies such as the forthcoming Corporate Sustainability Due Diligence Directive. While the ABBL and its members support the policy objectives of the proposal, it must ensure a proportionate approach when applied to financial services and provide a clear and pragmatic legal framework for integrating human rights and environmental protection into the supply and value chains of the companies concerned.

The ABBL contributed to the European Banking Federation's response to the consultation on the CSDD, highlighting the need to clarify certain definitions (e.g. value chain) and obligations as well as directors' duties of care. We also raised concerns about the practicalities of due diligence obligations for financial institutions and the inclusion of proposed civil liability provisions in light of current established principles of national civil law.