Sustainable Finance Disclosure Regulation (SFDR)
European Supervisory Authorities (ESAs) consult on taxonomy related product disclosures
On 15 March 2021, the ESAs published a paper seeking input on draft Regulatory Technical Standards (RTS) regarding disclosures of financial products investing in economic activities that contribute to an environmental investment objective – these economic activities are defined by the Taxonomy Regulation.
The Taxonomy Regulation establishes the criteria for determining whether an economic activity is environmentally sustainable for the purposes of establishing the degree of environmental sustainability of an investment.
The proposals include requiring companies carry out due diligence to identify, address and remedy their impact on human rights (including social, trade union and labour rights), the environment (contributing to climate change or deforestation), and good governance (such as corruption and bribery) throughout their value chain and a ban on imports of products linked to severe human rights violations such as forced or child labour.
European Parliament (EP) adopts report recommending Directive setting (ESG) Environmental Social and Governance supply chain due diligence obligations
On 10 March 2021, the EP adopted a legislative initiative report setting out recommendations for a new directive on corporate due diligence and corporate accountability that would require companies to address human rights and environmental due diligence in their value chains.
Cyprus Securities and Exchange Commission’s published objective is to protect the investors’ interest by ensuring that firms falling under its supervision comply with the relevant legislation on ESG.
CySEC present literature broadly defining ESG as an investment in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance
ATI Associates’ position on Sustainability and Environmental, Social and Governance investment.
Whilst recognising that Sustainability and ESG are admirable objectives in themselves, in order for their content to be sufficiently measurable and definable to establish standards against which balanced judgements can be made, much more clarification and due diligence is required. It is to be expected that the R T S which the ESA are in the course of drafting, and the recommendation made by the EP to establish a Directive on Corporate Accountability enters into force, that sufficient evidence will be disclosed and warranted to enable third parties to make a reasoned assumption as to the classification in the hierarchy of a Company or a Fund.
Until that is achieved, ATI will remain very guarded about expressing any opinion as to the ESG or Sustainability values of any investment vehicle that their client’s are currently invested in or where an investment idea is put forward for future investment.