EU sustainable finance framework latest related updates

1. The European Securities and Markets Authority (ESMA) explanatory notes with regards to the sustainable finance framework

ESMA issued three publications on 22  November 2023 regarding the following topics:

• Concepts of sustainable investments and environmentally sustainable activities in the EU sustainable finance framework

• “Do Not Significant Harm” (DNSH) definitions and criteria across the EU sustainable finance framework

• Concepts of estimates across the EU sustainable finance framework

• Concepts of sustainable investments and environmentally sustainable activities in the EU sustainable finance framework

Objective: To aid in the navigation of the sustainable finance framework for what relates to the SFDR definition of sustainable investment and the taxonomy regulation definition of sustainable economic activities.

• “Do Not Significant Harm” (DNSH) definitions and criteria across the EU sustainable finance framework

Objective: To explain the DNSH principle in the different contexts of the sustainable finance framework (taxonomy regulation, SFDR regulation and benchmark regulation).

• Concepts of estimates across the EU sustainable finance framework

Objective: To aid in the navigation of the key elements related to “estimates” and “equivalent information” in the different contexts of the sustainable finance framework (taxonomy regulation, SFDR regulation and benchmark regulation).

2. Final texts of the EU Taxonomy Regulation Delegated Acts

The Delegated Acts for the 4 remaining environmental objectives*  and the Amendments to the climate change adaptation and mitigation Delegated Acts have been published in the Official Journal of the EU on 21  November 2023.

EU Taxonomy objectives:

• Climate change mitigation;

• Climate change adaptation;

• The sustainable use and protection of water and marine resources;

• The transition to a circular economy;

• Pollution prevention and control;

• The protection and restoration of biodiversity and ecosystems.

What is the timeline?

These updates will enter into force on 11 December 2023 and will start applying as of 1 January 2024.

What is the scope?

Implications for non-financial and financial entities*:

*Entities which are in the scope of the Art.8 of the EU Taxonomy

Implications for financial products*:

*Financial products classified Art.8 and Art.9 products as per SFDR. Please refer to page 50 of the following ESMA Q&A for further details on the scope.

• From 1 January 2024, Art.8 and Art.9 products as per SFDR will have to report on their taxonomy alignment on all 6 objectives of the EU taxonomy.

3. The EU Green Bond Standard (EU-GBS)

On 30 November 2023, the EU-GBS was published in the Official Journal of the EU. This framework can be used by public entities to finance their green investments while meeting sustainability requirements.

Key features of the standard involve:

• At least 85% of the funds raised by the bond should be allocated to economic activities that are aligned with the EU taxonomy regulation.

• EU green bonds should be checked by an external reviewer.

What is the timeline?

The regulation should start applying as of 21 December 2024.

4. The SFDR  final report on draft Regulatory Technical Standards (RTS)

On 4 December 2023, the ESAs released their final report on draft RTS amending the joint consultation paper published in April 2023.

Key highlights:

Amendments of the SFDR product pre-contractual templates and periodic templates including:

• A new section requiring product level disclosure on greenhouse gas (GHG) emissions reductions targets.

• The suppression of the asset allocation section replaced by a dashboard at the beginning of the template.

Amendments to Principal Adverse Impacts (PAI) framework requirements:

• New social mandatory and optional PAIs.

• Amendments of existing environmental PAIs and the PAI calculation methodology.

Amendment to website disclosure requirements:

• Additional disclosure required about the criteria and thresholds used for the DNSH.

• Additional disclosure required about the methodology used to measure GHG emissions reductions target.

What is the timeline?

The final report is subject to a scrutiny period of three months. At this date, the publication in the Official Journal of the EU is expected for Q2 2024, and the application is expected to be delayed until 1 January 2025.

Important note: These documents do not add to, interpret or replace the relevant legal texts.