New European ESG Disclosure Standards for Funds: Consultation on Key Provisions

7 May 2020
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  • As reported in our previous client update on the subject, from 10 March 2021, the new European Regulation on ESG disclosures (the “Disclosure Regulation”) will apply to fund managers, financial advisers and many other regulated firms in the EU as well as to non-EU fund managers marketing their funds in the EU. The Disclosure Regulation sets out detailed rules that will require firms—including most private equity fund managers in the EU but also non-EU managers marketing into the EU—to disclose how sustainability risks (environmental, social or governance considerations) are part of their investment decision-making process and how their investment decisions impact on sustainability factors (so called “adverse impacts statement”). The Disclosure Regulation is high level and with respect to certain areas requires the European Supervisory Authorities (the “ESAs”) to draft a Level II regulation providing for technical details as to how such requirements are to be applied in practice.
  • The ESAs recently published a consultation paper including a draft of the Level II regulation providing for such technical details and giving concrete guidance as to the implementation of key provisions of the Disclosure Regulation. The ESAs expect stakeholders to comment on the draft by 1 September 2020.
  • The draft provides details and guidance on (i) the website disclosures required by firms concerning their “adverse impacts statements” as well as on (ii) the product-related disclosure requirements (pre-contractual, ongoing and website disclosure) that apply with respect to products pursuing a sustainable investment objective or having sustainable investment characteristics. Some of the requirements set out are quite substantial and will require some preparation by firms.
  • The draft issued by the ESAs is an important step towards the finalisation of the ESG disclosure rules and is important for firms that need to prepare and to be ready by 10 March 2021.