Publications

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector aims to harmonize the legislation on the disclosure of information to investors on the risks and impacts on investment decision-making related to sustainability, sustainable investment objectives and the promotion of environmental and social features, with most of its provisions coming into force on March 10, 2021.

The regulation contains a number of obligations that relate to both the internal organization of the vast majority of financial institutions, as well as the information that they must publish on their website and include in the pre-contractual information on their products in relation to (i) the integration of "risks and impacts", meaning the impact that these institutions may create on the environment in sustainability terms; (ii) financial products that promote environmental or social characteristics; and (iii) financial products that target sustainable investments.

Main obligations in the regulation

The following sections describe the main obligations in the regulation and how they affect both the financial institutions required to fulfill them and the financial products mentioned above.

1. Internal organizational obligations

Entities covered by the regulation must approve a policy for the integration of sustainability risks in their investment decision-making processes or in their investment advisory services. They are also required to include in their remuneration policies, which they must already have in place, information on their consistency with the integration of sustainability risks.

Finally, although the regulation does not expressly say so, entities must review all their internal manuals, policies and procedures to adapt them to the contents of the regulation and to prevent any inconsistencies arising following the entry into force of the regulation.

2. Information to be published on the website

Entities covered by the regulation have to publish on their website information on their sustainability risk integration policies, as well as a statement on due diligence policies in relation to adverse impacts on sustainability factors that could arise from investment decisions or advice given.

Entities are also required to disclose on their websites the consistency of their remuneration policy with the integration of sustainability risks.

For financial products that promote environmental or social characteristics, the website must include a description of the environmental or social characteristics of the sustainable investment objective, as well as information on the methods used for their measurement and monitoring. And in relation to other financial products that promote sustainable investments, the website must include a description of the characteristics of the sustainable investment objective, as well as the method for measuring the impact of the selected sustainable investments.

Lastly, the regulation sets out an obligation for entities to ensure that the contents of their published advertising communications do not contradict the information disclosed on their website.

3. Information to be included in pre-contractual information on products

For financial products that promote environmental or social characteristics, the regulation requires their pre-contractual information to include how those characteristics are met and, if a reference index has been designated for the product, information on the consistency of the index with those characteristics.

For other financial products that promote sustainable investments, the regulation sets out the obligation for pre-contractual information on these products to include how the sustainability objective that has been set is considered to have been achieved and, if a reference index has been designated, how that index meets that objective, accompanied by an explanation of the reason why the index differs from a general market index.

For financial products with a carbon emissions reduction objective, an explanation of how the objective is to be achieved is also needed.

4. Periodic reporting obligations

The regulation also requires entities to include information on sustainability in their periodic reports. For financial products that promote environmental or social objectives, these reports must mention the degree to which these objectives have been met. For other products that  promote sustainable investments, the following must be included: (i) the overall impact of the product in accordance with the chosen sustainability indicators, or (ii) where a benchmark index has been designated, an overall comparison of the level achieved by the product in relation to that set index and to a general market index.

Guidelines from European Supervisory Authorities and statement by the CNMV on the regulation

As a result of the forthcoming entry into force of the regulation, the European Supervisory Authorities, through the Joint Committee -a strategic working group for cooperation between the European Securities and Markets Authority, the European Systemic Risk Board, the European Banking Authority and the European Insurance and Occupational Pensions Authority-, have prepared draft Technical Regulatory Standards (not yet approved in an Implementing Regulation), compiling the information in their joint consultation document published on April 23, 2020 to provide details of the content, methodologies and presentation on their standard templates of the information related to sustainability subject to the obligations included in the regulation.

The guidelines provided in the Technical Regulatory Standards relate, among others, to:

On February 18, the Spanish Securities Market Commission (CNMV) published a statement on the regulation, specifying its intention to achieve harmonized application once the Technical Regulatory Standards were finally approved and announcing the future publication of a Q&A document to provide information on criteria for fulfillment of the obligations under the regulation in the current absence of technical implementation standards.

The CNMV also announced in its statement its intention to apply the principle of proportionality and to take into account the uncertainty over the entry into force of the regulation when supervising compliance with the obligations it contains.

The statement nevertheless includes a simplified procedure designed to assist with the updating of investment fund prospectuses in relation to disclosure obligations related to sustainability risks and adverse events.

On the subject of obligations related to information on sustainable investments, the CNMV takes the view that, in general, the information contained in the prospectuses of funds registered as socially sustainable investment is sufficient, although their managers may modify them in the light of the technical standards that may be published by the European authorities.

Scope of application

In general, the regulation will apply to sustainable investments, meaning the investments made by a company that follows good governance practices and respects the precautionary principle, to the effect of not having an adverse effect on environmental or social objectives.

Therefore, the regulation’s provisions apply to both entities participating in the financial sector and financial products.

Entities covered by the regulation include (among others):

The regulation’s provisions applying to financial products cover both financial products that promote environmental or social characteristics, i.e., that follow the so-called ESG (Environmental, Social and Corporate Governance) criteria or objectives, and financial products that target sustainable investments in general terms.

Context

On September 15, 2015, the United Nations General Assembly approved the so-called 2030 Agenda for Sustainable Development, the main core of which are Sustainable Development Goals. Within this context, at EU level, the regulation was approved, which aims, in short, to harmonize the information disclosed in the field of impact investment.

The entry into force of the European regulation will take place on March 10, 2021, although a few of the regulation’s provisions entered or will enter into force on December 29, 2019 or on January 1, 2022.