Directive of the European Parliament and of the Council (EU) 2016/97 (IDD) Insurance Distribution Directive of 20 January 2016 on insurance distribution (revised text) Text with EEA relevance.

IDD is minimum harmonization directive and its provisions are specified in two delegated regulations: Commission Delegated Regulation (EU) 2017/2358 on product oversight requirements and product management and Commission Delegated Regulation (EU) 2017/2359 on information requirements and business conduct rules.

In August 2021, Delegated Regulation (EU) 2021/1257 amending Delegated Regulation (EU) 2017/2358 and (EU) 2017/2359, incorporated sustainability factors, risks and preferences to product oversight and management requirements for insurance companies and insurance companies. distributors, as well as to business rules and investment advice for insurance-based investment products.

This directive lays down rules for the distribution of insurance and reinsurance in the European Union with the aim of improve consumer protection a ensure equal conditions for all distributors, regardless of whether they sell products directly or through intermediaries.

The directive applies to:

• insurance companies
• insurance intermediaries
• reinsurance intermediaries
• supplementary insurance intermediaries (with certain exceptions)

and to all persons who provide information about insurance products and enable customers to conclude an insurance contract online.

Directive does not include persons who provide only occasional advice on insurance in the framework of other professional activities.

Main points of the directive:

• Registration of intermediaries: Intermediaries must be entered in the register of the competent authority in the Member State in which they have their residence or registered office.
• Freedom of establishment and provision of services: Intermediaries can operate throughout the EU on the basis of the principle of freedom of establishment and freedom to provide services.
• Supervision: The home and host Member States cooperate in the supervision of intermediaries.
• Professional knowledge and skills: Intermediaries must demonstrate sufficient professional knowledge and skills and undergo regular training.
• Good reputation: Intermediaries must have a good reputation and a clean criminal record.
• Liability insurance: Intermediaries must have liability insurance for damage caused in the performance of their profession.
• Protection of customer funds: The directive introduces measures to protect customers' funds from the incompetence of the intermediary.
• Transparency of rewards: Referrals must provide information about their reward to customers.
• Assessing customer needs: The sale of insurance must always be based on an assessment of the customer's needs.
• Advice: If advice is provided, a personal recommendation must be presented to the customer.
• Cross-selling: The directive regulates the rules of cross-selling in order to prevent disadvantageous practices for the customer.
• Product supervision: Insurance companies must ensure that insurance products meet the needs of the target market.
• Sanctions: Member States must establish effective, proportionate and dissuasive sanctions for infringements of the Directive.

The directive aims to strengthen consumer protection a improve the functioning of the internal insurance market. It introduces stricter rules for intermediaries and insurance companies to ensure transparency and fairness in the sale of insurance products.

Directive of the European Parliament and of the Council (EU) 2024/1619 (CRD) Capital Requirements Directive of 31 May 2024 amending Directive 2013/36/EU as regards supervisory powers, sanctions, third country branches and environmental, social and governance risks. In the consolidated version of the CRD Directive, ESG factors are addressed, for example, in Article 3, paragraph 1, point 68 and point 69; Article 73; Article 74; Article 76; Article 87a; Article 91; Article 98; Article 100; Article 104 (the list does not represent an exhaustive calculation).

This Directive shall enter into force on the twentieth day following its publication in the Official Journal of the European Union. Article 1 point 44 letter c) and Article 1 point 45 letter c) are applied from July 29, 2024.

Publication date

19. 6. 2024

This directive aims to strengthen the integrity of the financial system of the Union a harmonization of the regulatory framework for credit institutions. It introduces measures to:

• Avoiding conflicts of interest:
  • The Directive emphasizes the independence of competent authorities, their employees and members of administrative and management bodies.
  • Misleading minimum requirements for avoiding conflicts of interest, such as waiting periods for employees and members of administrative and management bodies before employment with supervised entities, prohibition of trade in instruments issued by supervised entities and maximum tenure period for the relevant members of the administration and management bodies.
  • Employees and members of bodies subject to waiting periods are entitled to adequate compensation.
  • An obligation is introduced submit declarations of interests for employees and members of administrative and management bodies.
• Strengthening the supervision of branches from third countries:
  • It is introduced request for permission for businesses from third countries that want to provide main banking services in the Union.
  • These businesses must establish at least a branch in a member state, which will have authorization in accordance with Union law.
  • The directive stipulates framework for branches from third countries, including them classification, capital equipment, liquidity requirements a internal administration and management.
• Tightening of penalties for violations:
  • The Directive requires Member States to lay down effective, proportionate and dissuasive administrative sanctions, regular penalties a other administrative measures for violating the directive and related regulations.
  • It is introduced harmonized calculation of total net annual turnover for the purpose of determining the correct monetary sanctions.
  • The directive allows cumulation of administrative and criminal sanctions for the same violation.
• Strengthening of management and control requirements:
  • Security measures are in place diversity of governing bodies, in terms of age, gender, geographic origin and education and professional experience.
  • Institutions and financial holding companies are responsible for assessment of the suitability of members of the governing bodies, which are subsequently verified by the competent authorities.
  • An option is introduced preliminary suitability assessment potential members of governing bodies.
  • Institutions must develop individual statements of responsibility and overviews of duties for members of governing bodies, senior management and persons holding key positions.
• Simplification and harmonization of procedures:
  • The directive clarifies and simplifies the procedures activation of the systemic risk cushion.
  • It is introduced the obligation to take into account the principle of proportionality when developing technical regulations and guidelines.

The directive also regulates some aspects concerning merger and fusion, division a significant transfers of assets and liabilities.

EP and Council Regulation (EU) 2024/1623 (CRR ) Capital Requirements Regulation of May 31, 2024, amending Regulation (EU) No. 575/2013 regarding the requirements for credit risk, credit risk adjustment risk, operational risk, market risk and the lower limit for output values. In the consolidated wording of the CRR regulation, ESG factors are addressed, for example, in article 4, paragraph 1, point 52d), 52e), 52f), 52g), 52h), 52i), 154; Article 177; Article 207; Article 208; Article 210; Article 430; Article 433b; Article 449a; Article 501c (the list does not represent an exhaustive calculation).

This Regulation enters into force on the twentieth day following its publication in the Official Journal of the European Union. It applies from January 1, 2025. However, these points of Article 1 of this regulation apply from July 9, 2024: point 1 letter a) point iv); point 1 letter b); points 2, 3 and 4; point 6 letter f); point 8 letter c); point 11 regarding article 34 par. 4 of Regulation (EU) No. 575/2013; point 30 letter d); point 34 regarding article 104 par. 9 of Regulation (EU) No. 575/2013; point 35 letter a); point 37 regarding article 104c par. 4 of Regulation (EU) No. 575/2013; point 42 regarding article 111 par. 8 of Regulation (EU) No. 575/2013; point 52 relating to article 122a par. 4 of Regulation (EU) No. 575/2013; point 53 relating to article 123 par. 1 of the third subparagraph of Regulation (EU) no. 575/2013; point 55 regarding article 124 par. 11, 12 and 14 of Regulation (EU) No. 575/2013; point 56 regarding article 126a par. 3 of Regulation (EU) No. 575/2013; points 57 and 65; point 70 letter c) regarding Article 143 par. 5 of Regulation (EU) No. 575/2013; point 71 letter b); point 72 letter i); point 75 letter d); point 78 letter e); point 81; point 98 letters b); point 102 letter d); point 104 letter c); point 105 letter c); point 106 letter e); point 135 letter c); point 152 letter b) point ii); point 155 regarding article 314 par. 9 and 10, Article 315 par. 3, Article 316 paragraph 3, Article 317 paragraph 9 and 10, Article 320 par. 3, Article 321 paragraph 2 and Article 323 par. 2 of Regulation (EU) No. 575/2013; point 156 letter b); point 159 letter c) relating to Article 325c para. 8 of Regulation (EU) No. 575/2013; point 160 letters c) relating to Article 325j par. 7 of Regulation (EU) No. 575/2013; point 164 letter b); point 178 letters e); point 180; point 182 letters d); point 183 letters c); point 184 letter b) point iii); point 198 letters c); item 201 relating to Article 383a par. 4 and 5 of Regulation (EU) No. 575/2013; point 204; point 205 letter b) point i); point 214 letter a) and c); points 222 and 223; point 229 relating to article 449a par. 3 of Regulation (EU) No. 575/2013; points 232, 235, 236 and 238; point 239 letter a); point 242 relating to article 495b par. 2 and 4 and Article 495c par. 2 of Regulation (EU) No. 575/2013; points 243, 244, 248 and 249; point 250 relating to Article 506 of Regulation (EU) no. 575/2013; point 251 regarding Articles 506e and 506f of Regulation (EU) no. 575/2013; points 252, 253 and 254.

Publication date

19. 6. 2024

This Regulation introduces several changes to the existing Regulation (EU) No. 575/2013, which concern prudential requirements for institutions. The changes focus on various areas, including own resources, risk weights, market risk and operational risk.

Main changes:

• Lower limit for output values: A mechanism is being introduced to ensure the appropriate distribution of own resources with a goal savings protection. At the same time, transition periods and adjustments are defined for specific types of exposures, such as exposures of investment grade against unrated business entities a low risk mortgages.
• Exposures secured by real estate: It continues to be used credit distribution approach, but with adjustments in accordance with Basel III standards. Measures are being introduced to reducing the impact of cyclical effects on real estate valuation and on improving transparency when valuing real estate.
• Lower bounds for input values: They are misled minimum values for own estimates of risk parameters (probability of default, loss at default, loan conversion factors), which ensures a prudent level requirements for own resources.
• Market risk: A uniform effective date for the requirements is established FRTB (Fundamental Review of the Trading Book) to calculate the requirements for own funds to cover market risk. For institutions with moderately large range of activities in the business book the possibility to use is introduced simplified standardized approach.
• Operational risk: The Regulation defines in detail what is considered to be loss resulting from an operational risk event, and modifies the calculation methodology requirements for own funds to cover operational risk.

The regulation also emphasizes principle of proportionality, taking into account differences in the size and complexity of institutions.

Additional provisions:

• Definitions: The Regulation expands and clarifies the definitions of several terms, including model risk, exposures secured by real estate, one-year default rate, SME, unconditionally revocable promise.
• Consolidation: The rules regarding consolidation of subsidiaries, while providing more flexibility to competent authorities.
• Hedging: Rules are introduced for hedging of foreign exchange risk of capital shares and the treatment of internal hedging in exposures to the risk of adjusting the valuation of receivables.
• Transitional adjustments: They are established transitional periods for the implementation of some changes such as higher lower bounds for input LGD values.

The regulation also mandates EBA (European Banking Authority) by working out several guidelines and regulatory technical regulations to specify some aspects of the implementation in more detail.

Conclusion

This regulation represents a significant update of the prudential framework for institutions in the EU. His goal is increase resistance of the financial system and improve protection depositors and investors.

Commission Delegated Regulation (EU) 2021/1257 (IBIPS) Insurance-Based Investment Products of 21 April 2021 amending Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359 as regards the inclusion of sustainability factors, sustainability risks and sustainability preferences in the requirements to insurance companies and insurance distributors regarding the supervision of products and their management and to the rules for the performance of activities and investment advice in the field of investment products based on insurance (Text with EEA relevance)

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union. It applies from 2 August 2022.

Publication date

2. 8. 2021

Commission Delegated Regulation (EU) 2021/1257 modifies Delegated Regulations (EU) 2017/2358 and (EU) 2017/2359 with the aim incorporate sustainability factors into requirements for insurance companies and insurance distributors. The changes relate to the supervision of products, their administration and rules for the performance of activities and investment advice in the area of investment products based on insurance.

Reasons for changes:

• The regulation responds to the need to transition to a more sustainable economy in line with the goals of the Paris Agreement and the European Green Deal.
• The aim is to redirect capital flows into sustainable investments and prevent asset stranding.
• Increased investor demand for sustainable investments requires consideration of sustainability factors and sustainability-related objectives within product governance requirements.

Main changes:

• Obligation to consider sustainability factors: Insurers and insurance intermediaries must consider sustainability factors when approving and administering insurance products, especially those aimed at customers looking for products with a sustainable profile.
• Identification of the target market: It is necessary to determine exactly which group of customers with specific preferences in terms of sustainability the product is intended for.
• Transparent presentation of sustainability factors: Insurance distributors must have sufficient information on the sustainability factors of the product to be able to present them transparently to customers.
• Incorporating customer preferences for sustainability: Insurance intermediaries and insurance companies must take into account customers' sustainability preferences and identify potential conflicts of interest when providing investment advice.
• Distinguishing between different levels of sustainability: Insurance intermediaries and insurance companies must clearly explain to customers the differences between different insurance-based investment products and their level of sustainability.
• Prevention of greenwashing: Insurance intermediaries and insurance companies must not present products as sustainable if they do not in fact meet basic environmental and social standards.

The regulation entered into force on August 2, 2022 and is directly applicable in all EU member states.

Photosynthesis forms the basis of life on Earth, but climate change is increasingly threatening this essential process. With advanced tools, scientists can now study how changes in temperature, humidity and light affect photosynthesis and thus the future of ecosystems. (Andrei Ionescu, more at earth.com)

Commission Delegated Regulation (EU) 2021/1256 of 21 April 2021 amending Delegated Regulation (EU) 2015/35 as regards the inclusion of sustainability risks in the governance of insurance and reinsurance undertakings (Text with EEA relevance).

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union. It applies from 2 August 2022.

Publication date

2. 8. 2021

This Regulation amends the existing Delegated Regulation (EU) 2015/35 with the objective incorporate risks threatening sustainability into the management and administration of insurance and reinsurance companies. The Regulation entered into force 20 days after publication in the Official Journal of the European Union and applies from 2 August 2022.

Main points of the regulation:

• It emphasizes the importance of the transition to a sustainable economy in accordance with the goals of the Paris Agreement and the European Green Deal.
• Defines "sustainability risk" such as an environmental, social or governance event that could negatively affect the value of the investment or liability.
• It requires insurance and reinsurance companies to take sustainability risks into account within its management and administration systems, including solvency assessment.
• It orders insurance companies that publish information on the impact on sustainability factors, to adapt their procedures and controls.
• It requires that remuneration policies take into account the incorporation of sustainability risks to the risk management system.
• Emphasizes that insurance and reinsurance companies should take sustainability risks into account when investing and their clients' sustainability preferences.
• ** Introduces new definitions** such as "sustainability factors" and "sustainability preferences" and refers to relevant EU regulations.
• Amends several articles of Delegated Regulation (EU) 2015/35, to explicitly include risks threatening sustainability.

Basically this regulation obliges insurance companies and reinsurance companies to take a proactive approach to risks threatening sustainability, both in their investment strategies and in overall management and administration.

 

Commission Delegated Regulation (EU) 2021/1254 (MIFID II) Markets in Financial Instruments Directive II of 21 April 2021 amending Delegated Regulation (EU) 2017/565 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organizational requirements and performance conditions activities of investment companies, as well as defined terms for the purposes of the aforementioned directive (Text with meaning for the EEA).

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union.

Publication date

2. 8. 2021

This Regulation essentially amends the previous Commission Delegated Regulation (EU) 2017/565, which supplemented Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments. The correction mainly concerns the organizational requirements and conditions for the performance of the activities of investment companies.

The reason for the correction was several errors in the original text:

• Incorrect references to articles under Delegated Regulation (EU) 2017/565.
• Errors in the cross-references in Annex I to this Regulation, specifically in the sections relating to client assessment, processing of instructions, client instructions and transactions, client reporting, client communication and organizational requirements.

The most important change is the replacement of the entire Annex I with new text. This attachment contains minimal list of records, which investment companies must conduct depending on the nature of their activities.

For better clarity, the list in the appendix is structured in a table with the following columns:

• Nature of duty: Describes the field of activity to which the record relates.
• Record Type: Specifies the type of document or information to be recorded.
• Summary of Contents: A brief summary of the information that the record should contain.
• Reference to legislation: It lists the relevant articles of directives and regulations that impose the obligation to keep a given type of record.

Examples of the types of records investment companies must keep include:

• Information for clients
• Contracts with clients
• Records on assessment of suitability and appropriateness of investments
• Records of the processing of client instructions
• Records of client instructions and transactions
• Reports on compliance with regulations
• Conflict of interest records
• Complaint handling records

The Regulation entered into force on the 20th day after its publication in the Official Journal of the European Union.

Commission Delegated Regulation (EU) 2021/1253 (MIFID II) Markets in Financial Instruments Directive II of 21 April 2021 amending Delegated Regulation (EU) 2017/565 as regards the inclusion of sustainability factors, sustainability risks and sustainability preferences in certain organizational requirements and performance conditions activities of investment companies (Text with relevance for the EEA).

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union. It applies from 2 August 2022.

Publication date

2. 8. 2021

This Regulation amends Delegated Regulation (EU) 2017/565 with the objective to better integrate sustainability factors into the operation of investment companies. The basic motive is to support the transition to a more sustainable EU economy in accordance with the goals of the Paris Agreement and the European Green Deal.

Main points of the regulation:

• Consideration of risks threatening sustainability: Investment companies must take into account risks that could negatively affect the value of investments in terms of sustainability. This requires adequate knowledge and technical capacity.
• Identification of conflicts of interest: The regulation expands the definition of conflict of interest to include situations where the client's preference in terms of sustainability could be jeopardized.
• Recommendation of suitable financial instruments: Investment firms must be able to recommend instruments to clients that match their sustainability preferences and financial goals. They must clearly explain the differences between different types of tools with regard to their sustainability.
• Prevention of greenwashing: Investment companies may not present financial instruments as sustainable if they do not in fact meet the relevant criteria. They must keep records of the reasons why they did not recommend certain tools to clients.
• Documentation of preferences in terms of sustainability: If the client modifies his preferences in terms of sustainability, investment companies must document his decision and the reasons.

The regulation also contains definitions of key terms such as "sustainability preferences", "sustainability factors" a "sustainability risks". These definitions are taken from Regulation (EU) 2019/2088 and (EU) 2020/852 of the European Parliament and of the Council.

The Regulation enters into force 20 days after its publication in the Official Journal of the European Union and applies from 2 August 2022.

Commission Delegated Regulation (EU) 2021/1255 (AIFMD) Alternative Investment Fund Managers Directive of April 21, 2021 amending Delegated Regulation (EU) No. 231/2013 regarding sustainability risks and sustainability factors to be taken into account by managers of alternative investment funds (Text with EEA relevance).

This Regulation enters into force on the twentieth day following its publication in the Official Journal of the European Union. It applies from 1 August 2022.

Publication date

2. 8. 2021

This Regulation amends the existing Delegated Regulation (EU) No. 231/2013 a introduces new requirements for alternative investment fund (AIF) managers to consider sustainability risks in their investment decisions.

Main points of the regulation:

• Definition of sustainability risks and sustainability factors: The Regulation adopts definitions from Regulation (EU) 2019/2088 on the disclosure of information on sustainability in the financial services sector.
• Obligation to consider risks threatening sustainability: AIF managers must take these risks into account when fulfilling their duties, in particular when assessing risks and managing conflicts of interest.
• Disclosure of information: If AIFMs consider the main adverse impacts of investment decisions on sustainability factors, they must disclose how these impacts are taken into account in their policies.
• Resources and expertise: AIFMs must have the necessary resources and expertise to effectively integrate sustainability risks into their activities.
• Conflicts of interest: AIFMs must identify and manage conflicts of interest that may arise from the inclusion of sustainability risks.

The Regulation entered into force 20 days after its publication in the Official Journal of the European Union and it applies from 1 August 2022.

The reason for this regulation is to support the transition to a more sustainable economy in line with the objectives of the European Green Deal. The Regulation is intended to ensure that investors have sufficient information on sustainability risks and that AIF managers properly take these risks into account in their investment decisions.

Commission Delegated Directive (EU) 2021/1270 (UCITS) Undertakings for collective investments in transferable securities of 21 April 2021 amending Directive 2010/43/EU as regards sustainability risks and sustainability factors to be taken into account in relation to undertakings for collective investment in transferable securities (UCITS) (Text with EEA relevance).

This Directive shall enter into force on the twentieth day following its publication in the Official Journal of the European Union. It applies according to Article 2(1) from 1 August 2022.

Publication date

2. 8. 2021

This Commission directive regulates risks threatening sustainability a sustainability factors in the context of undertakings for collective investment in transferable securities (UCITS).

Motivation:

• The directive responds to the need to transition to a more sustainable economy and achieving the goals of the Paris Agreement and the European Green Deal.
• The goal is redirect capital flows into sustainable investments and prevent asset stranding.
• Measures are being introduced to ensuring a high level of investor protection and prevention environmentally deceptive advertising (greenwashing).

Key changes:

• Definitions: The Directive introduces the definitions of "sustainability risk" and "sustainability factors" referring to Regulation (EU) 2019/2088.
• Duties of management companies: Management companies are required to take sustainability risks into account in all their activities, including risk management, conflicts of interest and investment assessment.
• Obligations of investment companies: Investment companies that do not process UCITS through a management company are also obliged to incorporate risks threatening sustainability into their activities.
• Disclosure of information: Management and investment companies must disclose how they take into account the main adverse impacts of investment decisions on sustainability factors, if they take these impacts into account voluntarily or on the basis of Regulation (EU) 2019/2088.

Implementation:

• EU member states must implement the directive into their national legislation by 31 July 2022.
• The measures of the directive will apply from 1 August 2022.

Directive (EU) 2021/1270 represents an important step towards a more sustainable financial system in the European Union.

 

Commission Delegated Regulation (EU) 2020/1816 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the explanation in the benchmark statement regarding how environmental, social and governance factors are reflected in the individual benchmarks provided and published (Text with EEA relevance).

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union.

Publication date

3. 12. 2020

This regulation complements Regulation (EU) 2016/1011 of the European Parliament and of the Council and further details explains how environmental, social and governance (ESG) factors are reflected in the reference values.

The regulation was adopted with a purpose to improve the transparency and comparability of benchmarks and provide investors with clearer information on how ESG factors affect their investments.

Main points of the regulation:

• Benchmark managers must in the benchmark statement explain how ESG factors are reflected in each benchmark or set of benchmarks they provide and publish. This explanation should include assessment of ESG factors a aggregate weighted average value.
• Regulation does not apply to interest rates and foreign exchange reference values.
• Benchmark administrators must update the provided information on ESG factors whenever there are significant changes and at least once a year. They must too state the reasons for the update.
• Annex I to the regulation sets out the template to be used to explain ESG factors in the benchmark statement.
• Annex II lists ESG factors to consider depending on the underlying assets of the benchmark.

The Regulation entered into force 20 days after its publication in the Official Journal of the European Union.

Commission Delegated Regulation (EU) 2020/1817 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the minimum content of the explanation of how environmental, social and governance factors are reflected in the benchmark methodology (Text with EEA relevance )

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union.

Publication date

3. 12. 2020

This Commission Delegated Regulation extends the existing Regulation (EU) 2016/1011 on indices used as benchmarks. The main objective of this regulation is improve transparency a comparability reference values in terms of environmental, social and governance (ESG) factors.

The regulation introduces the following key requirements for benchmark administrators:

• Explanation of ESG factors: Administrators must explain which ESG factors they took into account when developing the benchmark methodology. This explanation should include:
  • Which ESG factors are considered
  • How these factors are reflected in the key elements of the methodology, including the selection, weights and metrics of the underlying assets.
  • Data sources and standards used for each ESG factor.
  • Whether ESG objectives are followed.
• Using the pattern: The regulation provides a specific pattern, which managers should use to explain ESG factors.
• Update information: Administrators must update regularly information provided to reflect changes in methodology and to indicate the reason for the update.
• Exceptions: Regulation does not apply to:
  • Commodity reference values.
  • Reference values without underlying assets, which have an impact on climate change (for example, interest rates and exchange rates).

The regulation emphasizes the importance of ESG factors in the investment process and tries to provide investors clearer information on how these factors are taken into account in the reference values. The goal is to support sustainable financing a transition to a low-carbon economy.

Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020, covered by Council Regulation (EU) 2016/1011 of the European Parliament and of the Council, concerning minimum standards for EU benchmarks for investments in the transformation of the economy in the context of climate change and EU benchmarks for investments in line with the Paris Agreement by agreement.

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union.

Publication date

3. 12. 2020

This Regulation supplements Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments as regards minimum standards for two types of benchmarks:

• EU benchmarks for investments in the transformation of the economy in relation to climate change: These benchmarks aim to direct investments to areas that contribute to the transition to a low-carbon economy.
• EU benchmarks for investments in line with the Paris Agreement: These benchmarks are more ambitious and focus on investments that are fully in line with the goals of the Paris Agreement.

The regulation provides minimum standards for methodology of these reference values, with most standards common to both species but with different threshold values.

Key aspects of the regulation:

• Reference temperature scenario: The reference value methodology must be based on a 1.5°C warming scenario with no or limited exceedance as reported by the Intergovernmental Panel on Climate Change (IPCC).
• Restriction on allocation of shares: Equity-based benchmarks must have at least as much exposure to sectors with high greenhouse gas emissions (such as oil, gas, mining and transportation) as their underlying investable environment.
• Mandatory inclusion of range 3 greenhouse gas emissions: Emissions of range 3 greenhouse gases, which include emissions from the entire life cycle of products and services, must be gradually included in the methodology of reference values. The regulation establishes a schedule for the gradual introduction of these emissions into the methodology.
• Favoring companies with decarbonisation targets: Benchmark administrators may give more weight to companies that have set and published greenhouse gas emission reduction targets and are demonstrably achieving them.
• Minimum procedure leading to decarbonisation: Benchmarks must demonstrate the ability to reduce carbon emissions from one year to the next. For equity securities, a minimum annual decrease in the intensity of greenhouse gas emissions of 7 % is established.
• Basic emission intensity reduction: EU reference values for investments in the transformation of the economy must have a greenhouse gas emission intensity of at least 30 % lower than their investment-friendly environment. In the case of EU reference values for investments in accordance with the Paris Agreement, this reduction is set at 50 %.
• Exclusion criteria: The EU's investment benchmarks in line with the Paris Agreement must exclude companies that violate global standards (such as the UNGC principles), engage in controversial activities (such as weapons production) and have a high share of revenues from fossil fuels or electricity generation with high emission intensity.
• Transparency and accuracy: The Regulation establishes transparency requirements regarding the methodology, including information on data sources and estimates. Benchmark administrators must ensure the accuracy and comparability of greenhouse gas emissions data.

This regulation represents a significant step towards harmonization of the methodology of reference values related to climate change and increasing transparency and comparability information on the environmental impact of investments.

Regulation of the European Parliament and of the Council (EU) 2019/2089 EU Paris-aligned Benchmark (EU PAB); EU Climate Transition Benchmark (EU CTB) of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU benchmarks for investment in climate change economic transformation EU investment benchmarks in line with the Paris Agreement and benchmarks for sustainability disclosure (Text with EEA relevance)

This Regulation enters into force on the day following its publication in the Official Journal of the European Union.

Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amends Regulation (EU) 2016/1011 and his goal is improve the transparency and integrity of benchmarks used in investments, especially with regard to the goals of the Paris Agreement on climate change.

The regulation introduces two new categories of reference values:

• EU benchmark for investment in the transformation of the economy in relation to climate change: This benchmark aims to select assets that are in line with the decarbonisation process.
• EU benchmark for investments in line with the Paris Agreement: This benchmark aims to select assets whose carbon emissions are in line with the Paris Agreement targets.

The regulation provides requirements for providers of these benchmarks, including:

• Disclosure of information on methodology: Providers must disclose detailed information on the methodology used to calculate the benchmark, including the criteria for selecting and weighting assets and the method of measuring carbon emissions.
• Considering ESG factors: Providers must state in their benchmark statements whether and to what extent their benchmarks pursue ESG (environmental, social and governance) objectives.
• Efforts to decarbonize: By 2022, providers of EU benchmarks for economic transformation investments must select assets issued by companies that follow a decarbonisation process.
• Exclusion of certain sectors: The Commission identifies sectors to be excluded from the EU investment benchmarks in line with the Paris Agreement because they do not have measurable carbon reduction targets.
• Regular review of the methodology: Providers must regularly review their methodologies and inform users of any material changes.

Regulation (EU) 2019/2089 contributes to achieving the goals of the Paris Agreement by:

• Increases transparency in the area of low-carbon investments.
• It helps investors make informed decisions about sustainable investments.
• It supports the transition to a low-carbon economy.

Regulation entered into force the day following its publication in the Official Journal of the European Union.

Directive of the European Parliament and of the Council (EU) 2024/825 (GCD) Green Claims Directive of 28 February 2024 amending Directives 2005/29/EC and 2011/83/EU as regards the empowerment of consumers in the green transition through better protection against unfair practices and through better information (Text with EEA relevance)

This Directive shall enter into force on the twentieth day following its publication in the Official Journal of the European Union.

This Directive (EU) 2024/825 of the European Parliament and of the Council of 28 February 2024 focuses on empowering consumers within the green transformation. Specifically, it amends directives 2005/29/EC and 2011/83/EU with the aim of:

• Protect consumers from unfair practices, which mislead them and prevent them from making sustainable purchasing decisions.
• Provide consumers with better information, so that they can make informed purchasing decisions and contribute to more sustainable consumption models.

Main points of the directive:

• Expanding the definition of deceptive business practices: The directive expands the list of unfair business practices that are prohibited in all circumstances. These include practices related to:
  • Premature obsolescence of goods.
  • Misleading environmental claims ("green brainwashing").
  • Misleading information about the social characteristics of products or traders.
  • Opaque and unreliable sustainability brands.
• Tightening the rules for environmental claims: Traders will have to provide clear, objective and verifiable information to support their claims about the environmental properties of the products.
  • Claims about future environmental performance they will have to be supported by a detailed implementation plan and verified by an independent expert.
  • General claims about the environment without verifiable evidence will be banned.
  • Claims based on offsetting greenhouse gas emissions will also be banned.
• Mandatory information about the lifetime and repairability of products: Traders will have to consumers to provide information on the lifetime and repairability of products before concluding the contract.
  • That includes information on spare parts availability and repair instructions.
  • In case goods with digital elements will also have to be provided information about the availability of software updates.
• Introduction of a harmonized label for commercial lifetime guarantees: Traders will have to display the harmonized label, if the manufacturer offers commercial warranty of a lifetime longer than two years. This label will also have to contain information on the legal guarantee of compliance.

Important aspects:

• The directive states emphasis on transparency and verifiability of information provided to consumers.
• Misleading new tools to combat "green brainwashing" practices.
• Strengthens consumer rights to information about the lifespan and repairability of products.
• The aim of the directive is support sustainable consumption and contribute to the green transformation.

Time schedule:

• Member States must transpose the directive into national law by 27 March 2026.
• Take action apply from September 27, 2026.
• The commission will submit report on the application of the directive by 27 September 2031.

 

Regulation of the European Parliament and of the Council (EU) 2023/2631 (EuGB) European Green Bonds of 22 November 2023 on European green bonds and the optional disclosure of information for bonds marketed as environmentally sustainable and bonds linked to sustainability (Text with EEA relevance).

1. This regulation enters into force on the twentieth day following its publication in the Official Journal of the European Union. 2. This regulation applies from December 21, 2024. 3. Deviating from paragraph 2 of this article, article 20, article 21 paragraph 4, Article 23 par. 6 and 7, Article 24 par. 2, Article 26 par. 3, Article 27 par. 2, Article 28 par. 3, Article 29 par. 4, Article 30 par. 3, Article 31 par. 4, Article 33 par. 7, Article 42 par. 9, Article 46 par. 6 and 7, Article 49 par. 1, 2 and 3, Article 63 par. 10, Article 66 par. 3 and Articles 68, 69 and 70 apply from December 20, 2023. 4. By way of derogation from paragraph 2 of this article, Article 40, Article 42 paragraph 1 to 8 and Article 43 shall apply from 21 June 2026. 5. Member States shall take the necessary measures to comply with Articles 45 and 49 by 21 December 2024.

This regulation aims to unify the market for environmentally sustainable bonds within the European Union. Until now existing differences in the rules between member states led to market fragmentation, made it difficult for investors to compare bonds and increased the risk of greenwashing.

The regulation introduces the designation "European Green Bond" or "EuGB", which can only be used by compliant bonds strict criteria.

Key points of the regulation:

• Use of proceeds: Revenues from the EuGB must be allocated to projects that are in line with EU taxonomy for sustainable activities. The Regulation allows for some flexibility – maximum 15 % revenues may be allocated to activities that do not fully meet the taxonomy.
• Review: EuGB issuers must obtain independent review from external assessor before and after the issue. External assessors must be registered in the ESMA authority, which supervises them.
• Disclosure of information: EuGB issuers must publish detailed information about bonds and their impact on the environment.
• Supervision: They supervise EuGB issuers competent authorities in member states.
• Sanctions: The issuer may be fined for violating the regulation administrative sanctions, including fines.

The regulation also provides optional patterns for publishing information on other bonds marketed as environmentally sustainable.

The aim of the regulation is increase transparency and credibility green bond market and make it easier for investors identification truly sustainable investments.

Commission Delegated Regulation (EU) 2022/1288 of April 6, 2022, supplementing Regulation (EU) 2019/2088 of the European Parliament and of the Council as regards regulatory technical regulations, by specifying the details of the content and presentation of information in relation to the "do not significantly disrupt" principle, by specifying the content, methodologies and presentation of information in relation to sustainability indicators and adverse impacts on sustainability, as well as the content and presentation of information in relation to the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in regular reports (Text with EEA relevance)

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union. This regulation applies from 1 January 2023.

Commission Regulation (EU) 2022/1288 focuses on improving transparency in the field of sustainability in the financial services sector. The goal is provide end investors with clear, concise and understandable informationto be able to do informed investment decisions. The Regulation supplements and specifies the rules set out in Regulation (EU) 2019/2088 of the European Parliament and of the Council.

The Regulation addresses the following key aspects of sustainability disclosure:

• "Do not significantly violate the principle": sets out details of the content and presentation of information in relation to this policy.
• Sustainability indicators: specifies the content, methodologies and presentation of information regarding sustainability indicators and adverse impacts on sustainability.
• Pre-contractual documents: Defines the content and presentation of information on the promotion of environmental or social properties and sustainable investment goals in pre-contractual documents.
• Websites: Establishes rules for publishing information on the websites of financial market participants.

The regulation introduces the obligation for financial market participants to publish information on the main adverse effects their investment decisions on sustainability factors. This information must be published on the website in a special section entitled "Statement on the main adverse effects of investment decisions on sustainability factors". The statement must be published every year until June 30, while it refers to the period from January 1 to December 31 of the previous year.

Regulation further adjusts the presentation of information about:

• Financial products promoting environmental or social properties: Determines the format and content of pre-contractual information as well as information published in regular reports.
• Financial products whose goal is a sustainable investment: Establishes the format and content of pre-contractual information, as well as information published on websites and in regular reports.
• Financial products with investment options: Defines the rules for the publication of information about products that offer investors different investment options, while also promoting environmental or social characteristics, or which aim at sustainable investment.

The regulation provides detailed rules for calculation and presentation of indicators of the main adverse impacts on sustainability factors. These indicators are divided into three categories:

• Indicators applicable to investments in companies
• Indicators applicable to investments in states and multinational companies
• Indicators applicable to investments in real estate

The regulation also emphasizes the importance of engagement policies, which should be introduced by financial market participants with the aim of reduce identified major adverse impacts on sustainability factors.

An important part of the regulation is also the requirement to publish information on the extent to which investments are made in environmentally sustainable economic activities in accordance with the EU taxonomy set out in Regulation (EU) 2020/852. Financial market participants must also provide information on methods and data sources used to measure and monitor the sustainability of their investments.

The Regulation entered into force on the 20th day after its publication in the Official Journal of the European Union and it applies from 1 January 2023. His goal is increase transparency and accountability in the area of sustainability of financial investments and help investors make more informed decisions.

Regulation of the European Parliament and of the Council (EU) 2019/2088 (SFDR) Sustainable Finance Disclosure Regulation (SFDR) of 27 November 2019 on the disclosure of information on sustainability in the financial services sector (Text with EEA relevance).

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union. This regulation applies from March 10, 2021. Notwithstanding paragraph 2 of this article, however, article 4 par. 6 and 7, Article 8 para. 3, Article 9 par. 5, article 10 par. 2, Article 11 par. 4 and Article 13 par. 2 apply from December 29, 2019 and Article 11 par. 1 to 3 applies from 1 January 2022.

Regulation (EU) 2019/2088 focuses on improving transparency in the financial services sector in connection with sustainability. Its aim is to reduce information asymmetries between providers of financial products and services (financial market participants and financial advisors) and final investors.

The regulation introduces information disclosure obligations for financial market participants and financial advisors in the following areas:

• Inclusion of sustainability risks: Market participants and advisers must disclose their policies regarding the incorporation of sustainability risks into their investment decisions and the provision of advice. They must also disclose how they take these risks into account when choosing financial products for clients, and what impact these risks may have on investment returns.
• Consideration of adverse sustainability impacts: Market participants must disclose information on whether and how they take into account the main adverse impacts of their investment decisions on sustainability factors (eg environmental impact, social aspects, human rights). They must also describe their due diligence policies in this area and, where appropriate, state the reasons why they do not consider such impacts.
• Promoting environmental or social characteristics: If a financial product promotes environmental or social attributes, market participants must disclose information on how these attributes are achieved. They must also state whether any reference index is used to assess these properties and how this index is aligned with the declared properties.
• Sustainable investments: If the objective of the financial product is to achieve sustainable investments, market participants must disclose information on how this objective is to be achieved and which index is used as a benchmark. If the goal is to reduce carbon emissions, they must also state a target exposure to low carbon emissions in the context of the Paris Agreement.
• Transparency of remuneration policies: Market participants and financial advisers must disclose information on the extent to which their remuneration policies are consistent with incorporating sustainability risks.

In addition to these areas, the regulation also introduces requirements for regular update published information and on them presentation on the websites of market participants and financial advisors.

Regulation (EU) 2019/2088 represents an important step towards greater transparency and responsibilities in the area of sustainable investments. Its implementation will help end investors better understand the environmental and social impacts of their investments and will enable them make more informed investment decisions.

Commission Delegated Regulation (EU) 2023/2772 (ESRS) European Sustainability Reporting Standards of 31 July 2023, supplementing Directive 2013/34/EU of the European Parliament and of the Council with regard to reporting standards for sustainability information.

This regulation enters into force on the third day after its publication in the Official Journal of the European Union. It applies from 1 January 2024 for accounting years beginning on or after 1 January 2024.

This regulation focuses on the reporting of sustainability information by businesses. The main goal is ensure transparency and comparability of information about how businesses affect aspects of sustainability and how these aspects affect their operations.

Basic principles of the regulation

The regulation introduces several key principles for reporting sustainability information:

• Double significance: Businesses must report sustainability aspects based on the principle of double significance. This principle has two dimensions: the significance of the impact a financial significance. This means that they must consider both the impacts of the business on the sustainability aspects and the impacts of the sustainability aspects on the business.
• Value chain: The sustainability statement must cover the entire value chain of the business, not just its own operations. This means that businesses must consider impacts and dependencies throughout their supply chain.
• Time horizons: The regulation emphasizes the link between past, present and future in the reporting of sustainability information. Businesses must consider short, medium and long-term impacts, risks and opportunities.

Structure of the regulation

The Regulation introduces the European Sustainability Reporting Standards (ESRS), which are divided into three categories:

1. Cross-sectional ESRS: They establish general requirements for reporting information on sustainability. This includes a description of the procedures for identifying and assessing significant impacts, risks and opportunities related to environmental pollution, water and marine resources a resource use and circular economy.
2. Thematic ESRS: They focus on specific sustainability topics. Examples include:
   • Pollution of the environment: Businesses must report information on how they affect air, water and soil pollution, what measures they have taken to mitigate negative impacts and what the expected financial impacts are.
   • Water and marine resources: Disclosure of information is required on how the company affects water and marine resources, what measures it has taken to protect them and what the expected financial impacts are.
   • Resource utilization and circular economy: Businesses must report on their impact on the use of resources, on measures to support the circular economy and on expected financial impacts.
   • Own workforce: The regulation also focuses on social aspects, requiring the publication of information on the effects on the own workforce, on measures to ensure good working conditions and on risks and opportunities related to employees.
   • Workers in the value chain: Businesses must also consider their impact on workers throughout their value chain, including suppliers. They must inform about the measures to ensure their rights and the risks and opportunities associated with it.
   • Affected communities: The regulation also emphasizes the responsibility of businesses towards the communities in which they operate. Businesses must disclose information about impacts on these communities, about measures to mitigate negative impacts, and about risks and opportunities.
   • Consumers and end users: Another important topic is the impact on consumers and end users of the company's products and services. Disclosure of information on impacts on their health, safety and privacy, on measures to protect their interests and on risks and opportunities is required.
   • Business Conduct: The regulation also deals with the ethical aspects of business. Businesses must communicate their strategy and practices in areas such as supplier relationship management, anti-corruption and bribery, and payment procedures.
3. Sectoral ESRS: They will be developed later and will apply to specific industries.

Content of the sustainability statement

The sustainability statement must include information on:

• Measures and resources related to significant aspects of sustainability: Businesses must describe the measures they have taken to address significant aspects of sustainability and the resources allocated to their implementation. The goal is ensure understanding of key measures taken to prevent, mitigate and correct negative impacts, as well as to take advantage of opportunities.
• Metrics and target values: The regulation requires businesses to set measurable targets and indicators to track their sustainability progress. The goal is monitor the effectiveness of policies and measures through target values.
• Processes for identification and assessment of materiality: Businesses must describe their procedures for identifying and assessing the significance of sustainability impacts, risks and opportunities.
• Disclosure requirements in other ESRS: Businesses must identify and list any disclosure requirements in other ESRS that they have met.

Transitional provisions

The regulation contains transitional provisions that allow companies to phase in certain disclosure requirements. For example, in the first year (first year) of a sustainability statement under the ESRS, some disclosure requirements or data points may be omitted or may not apply. The list of gradually introduced disclosure requirements is provided in Appendix C to the Regulation.

Application requirements

The regulation also contains application requirements that provide more detailed guidance on individual aspects of reporting sustainability information. These application requirements are listed in Appendix A to the regulation and have the same validity as other parts of the standard.

Important concepts

The regulation introduces and defines several important concepts related to sustainability. Some of these include:

• Double significance: A principle that requires businesses to consider both their impacts on aspects of sustainability and the impacts of aspects of sustainability on them.
• Significance of influence: It focuses on how the business affects the economy, environment and society.
• Financial significance: Assesses how aspects of sustainability affect a company's financial situation, performance and cash flows.
• Value chain: It includes all entities and activities that are involved in the life cycle of a product or service, from the acquisition of raw materials to the disposal of waste.
• Stakeholders: Individuals or groups that can influence or be affected by the business. These include, for example, employees, suppliers, customers, investors and local communities.
• Sustainable oceans and seas: A concept that emphasizes the responsible use and protection of marine resources and ecosystems.

Conclusion

The Sustainability Reporting Regulation represents a significant step towards a more transparent and responsible business practice. The introduction of ESRS and the emphasis on dual materiality, value chain and time horizons provide a comprehensive framework for reporting sustainability information. It is important that businesses thoroughly understand the requirements of the regulation and have the necessary processes and systems in place to ensure compliance. Spring

Directive of the European Parliament and of the Council 2014/95/EU (NFRD) Non-Financial Reporting Directive of 22 October 2014 amending Directive 2013/34/EU as regards the disclosure of non-financial and diversity information by certain large undertakings and groups Text with EEA relevance.

This Directive shall enter into force on the twentieth day following its publication in the Official Journal of the European Union.

The main focus is disclosure of non-financial and diversity information by large businesses and groups.

The directive responds to the need increased transparency in the area of social and environmental information provided by businesses. The European Parliament emphasized the importance of information on sustainability, especially in the social and environmental fields.

Main points of the directive:

• Coordination of national regulations: The directive emphasizes the need to coordinate national regulations regarding the disclosure of non-financial information by large companies. This is important for the interests of companies, shareholders and stakeholders, especially if companies operate in several Member States.
• Minimum requirements: Minimum legal requirements are introduced for the extent of information that businesses must disclose. It's about providing unbiased and complete overview of policies, results and risks.
• Non-financial statement: Large businesses must prepare non-financial statement, which contains information on environmental, social, employment issues, respect for human rights and the fight against corruption.
  • Content of the report: The report should describe the company's policies in these areas, their results and risks. It should also include information on supply chain due diligence policies.
  • Exceptions: Member States may exempt companies from the obligation to prepare a non-financial statement if there is already a separate report with the same content.
  • Detailed information: The report should also contain information on the company's impact on the environment, measures to ensure gender equality, working conditions, social dialogue, safety and health protection at work and measures to protect local communities.
• Risks and their impact: Businesses must provide information about risks that could have serious negative consequences. These risks may arise from or be related to the company's operations, including its products, services and business relationships.
• Reporting frameworks: Companies can rely on national, European (e.g. EMAS) or international frameworks (e.g. UN Global Compact initiative, OECD, ISO 26000) when providing information.
• Enforcement: Member States must ensure effective means of enforcement disclosure of non-financial information in accordance with the directive.
• Importance for investors: Investors' access to non-financial information is an important step to support investments in business efficiency.
• Focus on large enterprises: New disclosure requirements they only apply to large companies and groups, in order to minimize the burden on small and medium-sized enterprises. The obligation to publish a non-financial statement applies to large enterprises that are subjects of public interest and to parent enterprises of large groups with more than 500 employees.
• Consolidated Reports: For groups of enterprises, consolidated management reports are required to ensure comparability and consistency of information.
• Information verification: Statutory auditors check whether a non-financial statement or separate report has been provided. Member States may also require verification of information by independent assurance service providers.
• Commission Guidelines: The Commission is to develop non-binding guidelines on the methodology for reporting non-financial information, including key performance indicators.
• Diversity Policy: Large companies must disclose their diversity policies in administrative, management and supervisory bodies (eg age, gender, education). If they do not have such a policy, they must explain why.
• Implementation report: The Commission will submit a report on the implementation of the directive to the European Parliament and the Council, in which it will also evaluate its scope and effectiveness.

Conclusion:

Directive 2014/95/EU represents an important step towards greater transparency and corporate responsibility. Its aim is to provide investors and other interested parties with a comprehensive overview of the company's non-financial performance, particularly in areas such as environmental responsibility, social affairs and governance. Spring