29 June 2023

Regulatory catch-up: EU-ESG

1. EC unveil major new sustainable finance package


“This package is a major step towards completing the EU sustainable finance framework, while ensuring that its elements are easier to use with minimum costs and help finance the transition.”

European Commission, Sustainable finance package press release, 13 June 2023


This month, the European Commission (EC) published their latest epic package of EU sustainable finance measures, which aim to “build on and strengthen the foundations of the EU sustainable finance framework”.


In their introduction, the EC point to the growing size of the sustainable investment financial market, as a result of “the many companies and investors who have already embarked on their sustainability journey” to a climate-neutral and sustainable economy by 2050.  The EC also admit these key stakeholders are now “facing challenges in this transition, especially when it comes to complying with new disclosure and reporting requirements”.


Hence, in the attempt to support companies at this time, the new EC measures aim to make the sustainable finance framework easier to use and works better for those willing to invest in their transition to sustainability.

To encourage the private funding of transition projects and technology, the EC plan to apply more activities to the EU Taxonomy. Finally, to increase transparency in the sustainable investment market, the EC propose new rules for ESG rating providers.


Here is a summary of the EC’s latest assemblage of sustainability source materials:



  • A set of EC sustainable finance package-related documents:
    • Communication: ‘A sustainable finance framework that works on the ground’
    • Staff working document: ‘Enhancing the usability of the EU Taxonomy and the overall EU sustainable finance’
    • Commission notice: ‘The interpretation and implementation of certain legal provisions of the EU Taxonomy Regulation and links to the Sustainable Finance Disclosure Regulation’ [SFDR/TR]



  • ‘Enhancing usability’

The EU Taxonomy Navigator is a new website with four tools to “help users better understand the EU Taxonomy in a simple and practical manner, ultimately facilitating its implementation and supporting companies in their reporting obligations”.


Finally, the EC also produced two explainer videos, covering ‘Transition Finance’ and ‘Greenwashing’.


The EU Taxonomy Delegated Acts are “approved in principle” and are expected to apply from January 2024.

Meanwhile, the EC will now discuss the new ESG ratings provider regulation with the EU Parliament and Council.

NB: the EC’s communication confirms that a public SFDR level 1 legal consultation will be launched in autumn 2023; this is part of their “comprehensive assessment” of the entire framework, looking at issues such as legal certainty, usability and how the Regulation can play its part in tackling greenwashing.


2. ESAs publish Progress reports on ‘Greenwashing’

Greenwashing is a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product or financial service. This practice may be misleading to consumers, investors, or other market participants.”

European Supervisory Authorities [common high-level understanding, 1 June 2023]


The three European Supervisory Authorities (ESMA, EIOPA and EBA) have each published their interim progress reports to address greenwashing in the EU financial sector.

These were issued in response to the EC’s May 2022 request for respective input on “greenwashing risks and the supervision of sustainable finance policies”.


At the same time, the ESAs outlined their ‘common understandings’, notably:

  • an interim ‘greenwashing’ definition (quoted above);
  • the concept of the sustainable investment value chain (SIVC)
  • that greenwashing instances can occur and spread:
    • intentionally or unintentionally
    • without investors actually being harmed (fiscally)
    • in relation to entities and products both inside and outside the EU legal framework


ESMA’s own Progress Report summarises a recent ‘cross-cutting’ assessment, covering the four sectors under their direct remit: Investment Managers, Investment service providers, Issuers and Benchmarks.  Results are said to verify that “misleading claims may relate to all key aspects of a product and entity”, including widespread “misleading use of ESG terminology such as naming”.


To address issues identified (so far) and increase retail investors’ participation, ESMA’s redress actions include:

  • Establishing “a reliable and well-designed labelling scheme” for sustainable financial products
  • FMPs “substantiate” their ESG claims, making a “balanced communication” of sustainability information
  • Enhance the reliability / comprehensiveness of available ESG data via external verification and auditing.


ESMA’s recent ‘greenwashing’ press release includes their own Sustainable Finance Explainer Video.

ESMA’s Final Report will be published in May 2024; this formally evaluate each EU regulator’s ability to tackle greenwashing risk, alongside final recommendations which may include more changes to the EU legal framework.


3. Industry “pushback” as draft SFDR/TR RTS consultation ends

The consultation on the European Supervisory Authorities (ESAs) latest 158-page draft level 2 SFDR/TR disclosure rules will end on Tuesday 4 July 2023.


As we previously summarised, the ESAs now propose yet more changes to their formidable SFDR/TR technical standards (applied at both Entity and Product level) such as:

  • PAI indicators: revised and expanded (e.g. ‘social’ list)
  • ‘Do no significant harm’ (DNSH): updated test and disclosure rules (with revisit of product category)
  • Greenhouse Gas (GHG) emissions: disclosure of ‘decarbonising’ targets

It was recently reported that major EU fund firms are now “pushing back” against this latest set of RTS changes, amid fears that the EC’s pending level 1 legal assessment may render many of these interim measures redundant.


Also attracting specific negative feedback is the proposed disclosure of a “dedicated dashboard” of high-level product sustainability attributes; there are concerns the presentation of the metrics defined in the draft RTS (i.e. buried within the fund prospectus and annual reporting) may further confuse potential investors.

4. ESMA launches Call for Evidence (MiFID product governance sustainability)

ESMA recently launched a Call for Evidence (‘CfE’) on MiFID II suitability and sustainability.

Open for comment until 15 September 2023, the aim is to gather feedback to help them “better understand the evolution of the market and provide answers as to how firms apply the new MiFID rules on sustainability.


The CfE will also enable ESMA to collect information, views and data on main trends on aspects related to the provision of sustainable investment products and services to retail clients.


NB: a reminder that ESMA recently updated its MiFID II guidance covering both Suitability Requirements and Product Governance, to reflect regime-specific ‘sustainability’ related factors applied in 2022.

This guidance is set to apply from October 2023.


5. Latest EU-ESG market trends


Both EFAMA and Morningstar point to continued net inflows during Q1-2023 for SFDR ‘Sustainable’ product types, which now account for 57% of the EU funds universe (an increase from 55.9% as at Q4-2022).


Here are the latest total AUM calculations (as at end-March 2023):

  • SFDR article 8 [‘light-green’]: €4,623 billion
  • SFDR article 9: [‘dark-green’]: €277 billion
  • SFDR article 6 [not sustainable]: €3,696 billion
  • Total AUM for EU funds             €8,596 billion

NB: Sustainability trends are also covered in EFAMA’s latest 2023 Industry Factbook, which is a must-read for anyone interested in the European funds market. The recently published digital edition is now free to download.

A 16-page sampler of key highlights is also now available.

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