A comprehensive package of measures to make the financial sector even more sustainable: the April 2021 package.
Green washing of financial products is coming closer to an end every day. Or at least that’s what the European Union has set out to do, and on 21th of April 2021 it took a big step towards contributing to sustainable investment.
The European Commission has published six amending Delegated Acts that will ensure that financial firms, such as advisers, asset managers or insurers, include sustainability in their procedures and their investment advice to clients. These rules are expected to start applying from October 2022.
These amendments are part of the ‘Sustainable Finance Package‘ which also included the first Climate Taxonomy Delegated Act and a proposal for a New Corporate Sustainability Reporting Directive (CSRD).
Under the current rules, in the “suitability assessments” advisers obtain information on a client’s investment knowledge and experience, financial situation, ability to bear losses, investment objectives and risk tolerance.
With April’s amendments, advisers will also assess the client’s suitability for an investment, and discuss the client’s sustainability preferences.
These measures are intended to help improve the flow of money into sustainable activities across the EU by allowing investors to redirect investments towards ‘greener’ technologies and companies, with the aim of making Europe climate neutral by 2050.
The new rules come shortly after the entry into force of the first part of the Regulation on sustainability disclosures in the financial services sector (SFRD), which from 10 March 2021 helps provide transparency with a clearer classification of sustainable investment products.
“We created a common language for investors who want to use their funds to make a substantial positive impact on the climate and the environment. It helps them to know what is green. It sorts the green from the greenwash. We are now taking the taxonomy a step further,” said European Commission Vice-President Valdis Dombrovskis.
Who will benefit from these new rules?
Investors and Citizens that will be able to re-orient their investments towards more sustainable technologies and businesses and Business, that will have access to new sources of funding through global capital markets and the financial sector worldwide.
“These improved rules will use common reporting standards to facilitate disclosures and comparability of information. We make sure that they build on and contribute to international standards as far as possible. They will provide a strong signal to investors and allow them to make informed decisions. Over time, this should bring sustainability reporting onto a par with financial reporting. Sharing information on sustainability will increasingly become a fact of business life”. European Commission Vice-President Valdis Dombrovskis.
The amendments on fiduciary duties and investment and insurance advice cover a number of areas, the most important are:
- In investment and insurance advice: when an advisor assesses a client’s suitability for an investment, he or she must analyze the client’s sustainability preferences.
- In fiduciary duties: the amendments clarify a financial firm’s obligations when assessing its sustainability risks, such as the impact of flooding on the value of investments.
- In the oversight and governance of investment and insurance products: financial product developers and financial advisors will have to consider sustainability factors when designing their products.
Claudia Pani – Impact Investing and Sustainable Business Manager