The next phase of policymakers’ efforts to build a sustainable financial system and economy should require all investment products to provide sustainability disclosure, says the European Securities and Markets Authority (ESMA).
The regulator issued a paper setting out its views on proposals to improve the regulatory framework for sustainable finance. ESMA’s paper aims to illustrate a “holistic vision … for the long-term, considering the framework’s overall architecture and the interconnectedness between its different building blocks.”
ESMA said the framework should evolve to facilitate investors’ access to sustainable investments, support the transition to the EU targets of climate-neutrality by 2050, and cut greenhouse gas emissions by at least 55% by 2030 — goals that will require an estimated €350 billion in additional investment per year.
“In this regard, investors play a key role as they ultimately drive the allocation of capital to investment objectives,” ESMA said, adding that the regulatory framework “needs to ‘facilitate the investor journey’ by helping investors navigate through a broad selection of sustainable products with different sustainability characteristics and varying degrees of sustainability ambition.”
To that end, the paper “outlines securities markets regulators’ view of how the framework should function in the longer-term, aspiring to its ‘ideal end-state,’” it said.
“All financial products should disclose some minimum basic sustainability information, covering environmental and social characteristics.”
The paper also recommended a new product categorization system to target sustainability and transition-related products, with “clear eligibility criteria and binding transparency obligations.”
Additionally, ESG data products should be more standardized and brought under regulatory oversight, and investor testing should be required before policies are adopted to ensure that they work for retail investors.
The paper also recommended that the EU Taxonomy — a sustainability classification system — should become the sole reference point for assessing sustainability, and that the system should be embedded in all legislation that deals with sustainable finance.