European Commission publishes sustainable finance guidelines and reports

On 18 June 2019, the European Commission (Commission) published new guidelines on corporate climate-related information reporting, as well as three reports produced by its technical expert group on sustainable finance (TEG). These covered the TEG’s work on (a) Taxonomy, (b) an EU green bond standard and (c) EU climate benchmarks and benchmarks' environmental, social and governance (ESG) disclosures.

A. The Commission’s Guidelines

The Commission’s guidelines on corporate climate-related information reporting (Guidelines) were published as part of its Sustainable Finance Action Plan.

The Guidelines are one step in the Commission's overall aim of ensuring that the financial sector in the EU plays its role in the transition to a climate-neutral economy and in funding investments at the required scale.

The Guidelines provide practical guidance to around 6,000 EU-listed companies, banks and insurance companies on how to better report both the impact that their activities are having on the climate and also the impact that climate change is having on their business.

The companies to which the Guidelines are addressed must disclose non-financial information under the EU’s Non-Financial Reporting Directive. The Guidelines have been informed by recent proposals from the Commission’s Technical Expert Group on sustainable finance (TEG), and also take into account recommendations made by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).

In addition to the Guidelines, the Commission published three reports from the TEG.

B. The TEG reports

Background

The TEG was established as part of the Commission’s Sustainable Finance Action Plan of March 2018, to assist the Commission develop:

  • an EU classification system, or taxonomy, to determine whether an economic activity is environmentally sustainable
  • an EU Green Bond Standard
  • methodologies for EU climate benchmarks disclosures for benchmarks and
  • guidance to improve corporate disclosure of climate-related information.

The TEG began its work in July 2018 and was originally expected to operate until June 2019, though its mandate has now been extended to the end of 2019.

The TEG reports which have now been published supplement the Commission’s legislative proposals on taxonomy and benchmarks of May 2018. The reports aim to further incentivise and channel private sector investment into sustainable development by making investors more aware of what they invest in and by giving investors important tools to invest sustainably.

The Reports

The three TEG reports are as follows:

Taxonomy Technical Report (Taxonomy Report)

The taxonomy is intended to be a tool to provide clarity on which activities can be considered 'sustainable' and to assist capital markets identify and respond to investment opportunities that contribute to environmental policy objectives in a consistent manner across the EU.

The Taxonomy Report establishes a list of economic activities which can substantially contribute to the mitigation of climate change. The intention is that additional activities will be added to the list through time.

The Taxonomy Report is accompanied by a User Guide, which provides “a quick overview of what the taxonomy is, what it is not, and how to use it in practice”.

The Taxonomy Report aims to provide practical guidance for policy makers, industry and investors on how best to support and invest in economic activities that contribute to achieving a climate neutral economy – its publication comes when the Commission's proposal on a Framework Regulation is under consideration by the Council of the EU and the European Parliament.

In early July 2019, the TEG expects to issue a call for feedback on its Taxonomy Report. It will then consider refining its list in light of the responses it receives and will report again to the Commission in late 2019.

Report on EU Green Bond Standard (GBS Report)

The GBS Report follows the TEG's March 2019 interim report, 'Proposal for an EU Green Bond Standard'.

Having reviewed feedback received to the interim report, the TEG has produced a revised version of a proposed EU-wide GBS and this is presented in the GBS Report, along with a template for a green bond framework.

The GBS Report recommends clear and comparable criteria for the issue of green bonds in the EU and, by linking it to taxonomy, these will help determine which climate and environmentally-friendly activities should be eligible for funding via an EU green bond. This, in turn, is expected to boost the green bond market, thereby allowing investors to scale up sustainable and green investment.

Interim Report on EU climate benchmarks and benchmarks' ESG disclosures. (Interim Report)

The Interim Report contains the TEG’s initial conclusions from its work on defining minimum standards for the methodologies of the “EU Climate Transition” and “EU Paris-aligned” benchmarks, addressing the risk of greenwashing.

The Interim Report also addresses the TEG’s work on disclosure requirements in relation to ESG factors and the alignment with the Paris agreement, including the standard format to be used to report these elements.

This work relates to the Regulation on low-carbon benchmarks, which has recently been agreed by the Council of the EU and the European Parliament.

At the same time, the TEG launched a six week call for feedback on the Interim Report. Having taken responses into account, it is expected to submit a final report to the Commission by the end of Q3 2019, following which the Commission will develop a delegated act and publicly consult on this.

Next steps

On 24 June 2019, the Commission will host a stakeholder dialogue on climate-related reporting and the TEG reports. The event will be streamed live on a dedicated event page.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.