The joint committee of Europe’s three primary financial regulatory agencies, the European Supervisory Authorities (ESAs) announced today proposals to add disclosures to the EU’s Sustainable Finance Disclosure Regulation (SFDR) relating to investments in fossil gas and nuclear energy activities.

Under the new proposals, providers of investment products classified under SFDR as Article 8 (products promoting environmental or social characteristics) or Article 9 (products with a sustainable investment objective) would be required to provide a yes/no disclosure regarding the product’s intention to invest in nuclear or gas, and, if yes, to provide a graphical representation of the proportion of investments in such activities.

The EU SFDR forms part of the EU’s Action Plan on financing sustainable growth. The regulation establishes harmonised rules for financial market participants including investors and advisers on transparency regarding the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability‐related information with respect to financial products.

Requirements under SFDR include reporting on the alignment of investments with the EU Taxonomy, the EU’s classification system enabling the categorization of economic activities that play key roles in contributing to the EU’s key environmental objectives, starting with climate change mitigation and climate change adaptation.

The taxonomy regulation went into effect at the beginning of this year, with the status of nuclear and gas remaining initially undetermined, until the European Commission published a Delegated Act in February, proposing criteria and disclosure rules for their inclusion in the Taxonomy. The decision to include nuclear and gas were controversial, with several member states, sustainable investment groups, and the European Commission’s own sustainable finance advisory group opposing their classification as green activities. Efforts to exclude nuclear and gas, however, were defeated earlier this summer in the European Parliament.

Following the decision to include nuclear and gas in the taxonomy, the EU Commission sent a request to the ESAs – The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA) – to propose amendments to the SFDR’s regulatory technical standards (RTS), which were drafted by the ESAs and submitted last year, to consider the exposure of financial products to investments in fossil gas and nuclear energy activities.         

The implementation of the SFDR disclosure requirements related to sustainable investment products by financial market participants has been set for January 2023, after two delays. Given the tight timeframe to implement the RTS, the ESAs were only given until September 30 to submit their proposals, and were not able to conduct public consultations. The final report with draft RTS, submitted today, however, does outline the feedback the regulators received from stakeholder groups on the proposals.

Click here to access the ESAs’ report.

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