The European Commission has published its updated Strategy for Financing the Transition to a Sustainable Economy (‘Renewed SF Strategy’) with over 50 significant and wide-ranging proposals aimed at greening the financial services sector – ranging from updates to current SFDR / Taxonomy rules to proposals for green retail loans and mortgages. The Strategy has been accompanied by a legislative proposal for an EU green bond framework (see our client alert here) and an updated delegated act on Article 8 Taxonomy disclosures by NFRD undertakings (see our briefing here).
The Renewed SF Strategy builds on the lessons learned during the last three years. As expected, financing the transition plays a major role in the new strategy, which notes that efforts to incentivise all economic sectors to transition towards more sustainable economic activities have made clear that a step-by-step approach and a greater differentiation between companies’ respective starting points in the transition process are needed.
The Renewed SF Strategy identifies four main areas for action: (i) financing the path to sustainability, (ii) inclusiveness, (iii) financial sector’s double materiality, and (iv) global cooperation, and proposes over 50 legislative and non-legislative initiatives to be implemented over the next few years.
As announced in April, the Commission will adopt a complementary Delegated Act (‘DA’) covering economic activities not yet covered in the first EU Taxonomy Climate Delegated Act such as agriculture, certain energy and manufacturing sectors, as well as nuclear activities. As part of other workstreams, the Commission also plans to:
- engage with the ESAs to further improve the SFDR RTS by December 2022 to clarify and potentially introduce additional PAI indicators on environmental and social matters;
- introduce minimum sustainability requirements for Art 8 SFDR products to guarantee minimum sustainability performance – which would mark a significant shift from the current disclosure based SFDR regime with limited design elements;
- work on other bond labels such as transition or sustainability-linked bonds;
- create a general EU framework of labels for benchmarks and any financial instruments (i.e. beyond bonds and SFDR products);
- work on creating an EU ESG Benchmark and reviewing existing standards for Climate Transition Benchmarks and Paris-aligned Benchmarks;
- ask the EBA for an opinion on the definition of and framework to support green loans and mortgages;
- review and potentially regulate the ESG ratings and research market;
- improve transparency and ensure inclusion of ESG factors in credit ratings and credit outlooks; and
- propose amendments to CRR/CRD and Solvency II regarding ESG risk management.
We have prepared a table summarising the content of the Renewed SF Strategy and its Annex, where we have indicated whether initiatives are of legislative (L) or non-legislative (NL) nature.