Sustainable finance: Presidency and European Parliament reach political agreement on transparency rules

Following a provisional agreement reached last week to create a new category of low-carbon benchmarks, the EU is complementing its set of rules to encourage investors to be more aware of the impact of their business on the environment.

The Romanian presidency of the Council and the European Parliament reached today, 7 March, a preliminary agreement on a proposal introducing transparency obligations on how financial companies integrate environmental, social and governance factors in their investment decisions.

Institutional investors, such as asset managers or insurance companies, receive a mandate from their clients and beneficiaries to make investment decisions on their behalf.

Impact of investment decisions

Although these companies have to comply with strict legal requirements to ensure that they act in the best interest of their clients, rules on duties and information as regards the environmental and social impact of their investment decisions have not yet been defined.

The text agreed today sets out a harmonised EU approach to the integration of sustainability risks and opportunities into the procedures of institutional investors.

It requires them to disclose:

– the procedures they have in place to integrate environmental and social risks into their investment and advisory process;

– the extent to which those risks might have an impact on the profitability of the investment;

where institutional investors claim to be pursuing a “green” investment strategy, information on how this strategy – is implemented and the sustainability or climate impact of their products and portfolios.

The proposed regulation should in practice limit possible “greenwashing” – i.e. the risk that products and services which are marketed as sustainable or climate friendly in reality do not meet the sustainability/climate objectives claimed to be pursued.

Next steps

The political agreement will now be submitted to EU ambassadors for endorsement. It will then undergo a legal linguistic revision. Parliament and Council will be called on to adopt the proposed regulation at first reading.