On 15 March 2021, the European Supervisory Authorities (“ESAs”) launched a public consultation on new regulatory technical standards (“RTS”) with regards to the content and presentation of sustainability disclosures, specifying additional disclosures in relation to investment funds making use of the environmental Taxonomy Regulation (“TR”). These two sets of RTS will be consolidated to provide a single rulebook for sustainable disclosures.

Timeline

ESAs should issue a final report to the European Commission by July 2021. The final RTS will apply from 1 January 2022 for climate change mitigation and climate change adaptation objectives and from 1 January 2023 for other environmental objectives referred to in the TR.

Key Points

The new draft RTS lay down the content, methodologies and presentation of the additional information relating to the degree of taxonomy alignment that light green products (promoting environmental or social characteristics) and dark green products (products having a sustainable investment objective) will have to include in their pre-contractual and periodic disclosures.

1. Standardized metric

The extent to which investments are taxonomy-aligned should be calculated as a ratio. The green ratio for assets under management is defined as the proportion of debt securities and equity instruments financing taxonomy-aligned economic activities, compared to total assets under management.

2. Assessment of taxonomy-alignment

The assessment should build upon the framework applicable to the undertakings falling in the scope of the Non-Financial Reporting Directive (“NFRD”) which will be required to disclose the proportion of their turnover, capital expenditure or operating expenditure which is taxonomy-aligned.

3. Consistency requirements

The key performance indicator (“KPI”) used to measure the taxonomy-alignment of investee companies should be the same for both pre-contractual and periodic disclosures of all investee companies of the same type.

4. Derogation from general requirements

Light green and dark green products that are taxonomy-aligned by making investments in environmentally sustainable economic activities do not need to explain further how those investments contribute to an environmental objective.

Practical considerations

Dark green and light green UCIs should prioritize the analysis of the KPIs reported or expected to be reported by investee companies. The selected KPIs should be most appropriate to provide a fair view of the attainment of the UCI’s environmentally sustainable objective or the contribution of environmentally sustainable investments to the characteristics promoted by the UCI, also taking into consideration the transparency expectations of the UCI’s investors.

Any expected gaps arising from investee companies which are not in scope of the NFRD should be investigated, either by engaging with these companies to figure out whether or not they intend to publicly report their taxonomy alignment or are prepared to report such information privately. This strict hierarchy of data sources provided by the new rules is likely to prevent investors to use a single third-party data provider as a default one-size-fits-all solution.

Investment funds classified as green should already anticipate these new requirements since the schedule is very tight.

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