Other Regulatory Developments to Watch
MAY 10, 2023

Sustainable Finance

In the previous issue of the Regulatory Update it was highlighted that the EBA is committed to supporting the European banking and financial sector in tackling climate change and the transition to a more sustainable economy. On 26 January 2023, the EBA issued an opinion on the first set of draft European Sustainability Reporting Standards (ESRS 1) as prepared by the European Financial Reporting Advisory Group (EFRAG). The EBA’s opinion gives particular attention to the interoperability with the sustainability-related disclosures required under the EBA Pillar 3 Framework and to the credit institutions’ data needs from a risk management perspective. The EBA’s views are intended to be considered either by the European Commission before the adoption of ESRS 1 during the development of the next set of standards, or shortly after the adoption of ESRS 1. The EBA acknowledged significant improvement and consistency with international standards and believes that the draft offers a well-balanced approach and serves a good basis for implementation of the CSRD.

The European Supervisory Authorities and the ECB published a joint statement on the disclosure on climate change for structured finance products in which they call on issuers, sponsors and originators of such assets at EU level to proactively collect high-quality and comprehensive information on climate-related risks during the origination process. This call for improved disclosure concerns all funding instruments that are backed by the same type of underlying assets.

Meanwhile, negotiators of the Council of the EU and the European Parliament reached a provisional agreement on the creation of European Green Bonds Regulation (EuGB). This Regulation lays down uniform requirements for issuers of bonds that wish to use the designation EuGB for their environmentally sustainable bonds that are aligned with the EU taxonomy and made available to investors globally. It also establishes a registration system and supervisory framework for external reviewers of EuGB. To prevent greenwashing in the green bonds market in general, the Regulation also provides for some voluntary disclosure requirements for other environmentally sustainable bonds and sustainability-linked bonds issued in the EU. This agreement will eventually need to be adopted by the EU Council and EU Parliament and shall apply within 12 months of its entry into force.