The European Parliament and EU member states worked through the night on Wednesday to reach an agreement on disclosure requirements related to sustainable investments and sustainability risks.
The agreement means that for the first time it is now clear in regulation that ESG is part of investment decision making. The agreement is being lauded as a significant move towards accountability of investment decisions on the real economy.
In a statement the European Commission said that the new regulation sets out how financial market participants and financial advisors must integrate environmental, social or governance (ESG) risks and opportunities in their processes, as part of their duty to act in the best interest of clients.
It also sets uniform rules on how those financial market participants should inform investors about their compliance with the integration of ESG risks and opportunities. It argues that this will address information asymmetries on sustainability issues between end investors and financial market participants.
The new regulation is built around three main pillars: elimination of greenwashing; regulatory neutrality via a disclosure toolbox to be applied by all financial market operators; and a level playing field.
The EU said that the agreed rules will strengthen and improve the disclosure of information by manufacturers of financial products and financial advisors towards end-investors.This was first proposed by the Commission as part of the Sustainable Finance Action Plan in May 2018 and are part of the EU’s efforts under its sustainable development agenda.
The EU is supporting the transition to a low carbon economy and has been at the forefront of efforts to build a financial system that supports sustainable growth.
The European Commission established a High Level Expert Group on Sustainable Finance to make recommendations. This group included Claudia Kruse, managing director of global responsible investment and governance at APG, and Nathan Fabian, director of the PRI.
Kruse has been active in collaborating with policymakers on sustainability issues, and advocates for the importance of pension fund views being heard in policy development. In the Netherlands, APG is also chairing a roundtable to see how the finance sector can help reach the country’s carbon transition target.
Claudia Kruse will join Sven Gentner, head of the unit for asset management at the European Commission, and Will Martindale, director of policy and research at the PRI, to discuss sustainable finance policy and the role of pension funds at the Fiduciary Investors Symposium at Cambridge University.