Europe’s three primary financial regulatory agencies, the European Supervisory Authorities (ESAs) announced today the publication of advice covering information to be provided by asset managers, insurers, banks and other institutions in order to comply with their disclosure obligations under the Non-Financial Reporting Directive (NFRD). The ESAs include The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA).
The EU’s Non-Financial Reporting Directive, or Directive 2014/95/EU, requires large companies to disclose certain information on the way they operate and manage social and environmental challenges, outlining the rules on disclosure of non-financial and diversity information by these companies. The Taxonomy Regulation is part of the EU Action Plan on Sustainable Finance, establishing a classification system enabling the categorization of economic activities that play key roles in contributing to at least one of six defined environmental objectives, and no significant harm done to the other objectives.
Today’s publications come in response to a call by the European Commission on the ESAs to provide guidance on disclosure requirements outlining how and to what extent activities fall within scope of the NFRD to qualify as environmentally sustainable under the Taxonomy Regulation, including providing Key Performance Indicators (KPIs) and methodology for disclosure.
While the ESAs noted that their responses have been coordinated in order to ensure consistent proposals, they each provided separate answers, as the Commissions call for advice included separate questions for each regulator, related to the institutions under their supervision. The EBA stated that its response underlined the importance of the green asset ratio, supported by other KPIs, as a key means to understand how institutions are financing sustainable activities and meeting the Paris agreement targets. EIOPA outlined KPIs depicting the extent to which insurers or reinsurers carry out taxonomy-aligned activities in terms of non-life gross premiums written, and how they fund or finance taxonomy-aligned economic activities in relation to total investments. ESMA focused on definitions to be used by non-financial undertakings for the calculation of the turnover KPI, the CapEx KPI and the OpEx KPI, and the KPI that asset managers should disclose.
Steven Maijoor, ESMA Chair, said:
“These disclosures are essential to provide investors with the information needed to direct investments towards environmentally sustainable activities. They will also be a key building block for the reporting of other financial market participants under the EU Taxonomy.”