Europe rushes to standardize ESG securities sold to Asian investors
Regulators seek increased transparency, disclosure for firms and products
5 Oct 2020 | Bayani S Cruz

European regulators are rushing to put in place common standards for environmental, social and governance (ESG)-related financial products sold in the European Union (EU), which are heavily invested in by Asian investors.

The regulators’ latest action is the launch of a survey by the European Supervisory Authorities (ESA) seeking public feedback on presentational aspects of product templates, pursuant to Articles 8(3), 9(5) and 11(4) of the Regulation on Sustainability – Related Disclosures in the Financial Services, also known as the Sustainable Finance Disclosure Regulation (SFDR). The survey is open for comments until October 16 2020, according to a statement.

The SFDR, which takes effect on March 2021, imposes transparency and disclosure requirements on investment firms and products.

The ESA is an influential body composed of the European Banking Authority, European Insurance and Occupational Pensions Authority, and European Securities and Markets Authority.

The ESA proposes to standardize the disclosure of information for financial products that promote environmental and social characteristics, or have a sustainable objective.

The standardized disclosure requirements will cover a wide range of financial instruments that are sold to Asian investors, including hedge funds, UCITS funds, and insurance products.

“The use of such mandatory templates will improve the comparability of different financial products in different EU member states and are intended to be included in existing disclosures provided by alternative investment fund managers, undertakings for collective investment in transferable securities (UCITS), insurance undertakings, institutions for occupational retirement provisions, or providers of pan-European personal pensions products,” according to a statement.

The development of new disclosure standards will be particularly relevant to Asian investors as UCITS funds account for a huge volume of the investment funds sold in Asia. For example, the value of assets of UCITS funds in Luxembourg offering Chinese securities doubled to reach more than US$40 billion in April 2020, according to Refinitiv data.

With its latest survey, the ESA is inviting stakeholders to comment on the layout of the templates, which reflects the text of the draft Regulatory Technical Standards (RTS) from the recent public consultation on the SFDR that ran from April 23 until September 1 2020.

The final content of the templates is subject to the outcome of a concurrent consumer testing exercise and the ESA’s final report on the draft RTS under the SFDR.

The SFDR is a sister-regulation to the EU Taxonomy, which establishes criteria for determining whether an economic activity is environmentally sustainable and includes additional product-level reporting requirements for products that promote environmental characteristics.

The EU Taxonomy began to be implemented on July 12 2020, but many key provisions will apply at a later date to pave the way for additional guidelines that will come in the form of delegated acts.

The delegated acts on the first two climate-related goals, namely climate change mitigation and adaptation, are scheduled for adoption by the EU on December 31 2020 and will apply beginning January 1 2022.

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