EU Action Plan: Regulatory sustainability requirements for asset managers and investment advisors

According to Deloitte, the EU Commission published an action plan for a sustainable financial system in March 2018. The aim is to direct capital flows towards the restructuring of a sustainable economy, to integrate sustainability more closely into risk management and to promote the transparency of sustainable financial products.  The EU Action Plan provides for the implementation of a total of ten measures to this end.

At its core, the EU Action Plan initially provides for a classification system (taxonomy) that defines criteria for sustainable economic activities and thus provides investors with the necessary transparency for their decisions.

An economic activity is sustainable if it contributes to one of the six environmental objectives: climate change mitigation, adaptation to climate change, sustainable use and protection of water and marine resources, transition to closed cycle management, waste prevention and recycling, pollution prevention and control, and protection of healthy ecosystems. The promotion of one objective must not have a negative impact on other environmental objectives and must ensure compliance with social standards and fair working conditions.

 Essentially, the ESG criteria should be integrated into the entire process chain, from disclosure obligations at company and product level, through the preparation of market analyses, to advising customers, to final investment decisions and risk management.

The draft Disclosure Regulation (2018/0179 (COD)) is to be finalised by the end of 2019.

The addressees of the Ordinance are financial market participants, including credit institutions and investment firms offering asset management (financial portfolio management) and investment advice. In future, they must disclose information on the consideration of ESG factors in their investment decisions, information on the alignment of investments with ecologically sustainable factors and on performance in relation to ESG objectives.