ESG

CORPORATE SUSTAINABILITY REPORTING DIRECTIVE

The European Commission is consulting on a draft delegated directive which would adjust the size criteria for micro, small, medium-sized and large companies to account for the effects of inflation.

The change would be specific to the definition used in respect of the Accounting Directive. It would not impact the SME definition in Recommendation 2003/361, which may be reviewed separately.

The Commission’s view is that it is necessary to amend the monetary size criteria in the Accounting Directive i.e. the balance sheet total and the net turnover, for determining the size category of a company by 25% to adjust for the effects of inflation.

According to the Commission, the 25% adjustments would reduce the scope of application of the sustainability reporting requirements under the Accounting Directive, as amended by CSRD, and consequently under Article 8 of the Taxonomy Regulation for large undertakings, small and medium-sized undertakings that are listed, and large groups.

The consultation closes 6 October 2023. For more information, read the latest insights from our Corporate and M&A Group here: Proposed Increases to Size Thresholds Impact CSRD Scope - Arthur Cox LLP.

EU GREEN BOND STANDARD REGULATION (EU GBS)

The EU GBS is scheduled to be considered by the European Parliament in its 2-5 October 2023 plenary session, following trilogue agreement in February 2023. For more information, read our latest insights here: Green Bonds: Update on EU Green Bond Standard Regulation - Arthur Cox LLP.

FIT-FOR-55 CLIMATE RISK SCENARIO ANALYSIS FOR BANKS

The European Banking Authority’s public consultation on draft templates for collecting climate related data from EU banks runs until 11 October 2023.

This is part of the one-off Fit-for-55 climate risk scenario analysis, which the EBA is carrying out together with ESMA, EIOPA, the ECB and the ESRB.

The draft templates (template guidance for the one-off data collection and templates for the data collection of the one-off exercise) are designed to collect climate-related and financial information on credit risk, market and real estate risks. Banks have been asked to report aggregated and counterparty level data as of December 2022 to facilitate an assessment of large climate exposures and to capture amplification mechanisms and assess second round effects. Aggregated data will inform on the climate-related risks of the banking sector more broadly.

The EBA then plans to launch a data collection at the end of November 2023 with the support of the Single Supervisory Mechanism and other competent authorities – the same 70 banks that form part of the 2023 EU-wide stress test will take part in that exercise (and competent authorities may request other banks in their jurisdictions to participate).

The one-off Fit-for-55 climate risk scenario analysis is expected to start by the end of 2023, with publication of results envisaged by Q1 2025.

MIFID - INTEGRATION OF SUSTAINABILITY PREFERENCES

ESMA’s call for evidence on the integration of sustainability preferences in the suitability assessment and product governance arrangements closed for feedback on 15 September 2023. This followed updates to the MiFID II Delegated Regulation in August 2022 to integrate sustainability factors, risk and preferences into certain organisational requirements and operating conditions for investment firms. Those updates had already triggered a review and update of ESMA’s 2018 suitability guidelines, with updated guidelines now applying from 3 October 2023. While the call for evidence was not of itself intended to trigger further changes to the guidelines beyond those which come into force on 3 October 2023, ESMA has set out more detail on its plans to launch a Common Supervisory Action (CSA) with National Competent Authorities on the integration of sustainability in firms’ suitability assessment and product governance processes and procedures in 2024. The goal of the CSA will be to assess the progress made by intermediaries in the application of the key sustainability requirements which came into force in August 2022. The CSA will cover the following:

• How firms collect information on their clients’ sustainability preferences.
• What arrangements firms have put in place to understand and correctly categorise investment products with sustainability factors for the purpose of the suitability assessment.
• How firms ensure the suitability of an investment with respect to sustainability (including the use of a portfolio approach).
• How firms specify any sustainability-related objectives a product is compatible with as part of the target market assessment of the investment product.