ESMA highlights sustainable finance as a priority for the asset management industry

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The European Securities and Markets Authority (ESMA) published a speech delivered by Natasha Cazenave, Executive Director of ESMA, setting out the key priorities for the asset management industry in 2022, largely focused on sustainable finance and systemic risk.

In its speech, ESMA acknowledged that demand for ESG products remains strong, with many investors increasing their allocation to sustainable investment products and vehicles. He noted that the disclosure requirements of the EU Sustainable Finance Disclosure Regulation (SFDR) in place since March 2021, have been designed to boost investor confidence and further support market growth. ESMA welcomed the significant efforts made by market participants to prepare for the SFDR application measures which will apply from 1 January 2023 and indicated that it would continue discussions on the evolution of the obligations of information with European national authorities.

Beyond the implementation measures under the SFDR, the European supervisory authorities are also preparing to review the indicators of the main negative impacts, a key element of the SFDR disclosures. The purpose of such a review is to ensure that the indicators remain relevant in light of major environmental and scientific developments. One of the most important developments is that fund managers and investors are increasingly treating disclosure categories as a classification of products, for example presenting themselves as Article 8 or Article 9 of the SFDR. As a result, Article 8 products (also known as “light green” products) have been singled out for having less ambitious environmental or social characteristics. ESMA should consider appropriate criteria to ensure that investors seeking sustainability features are offered financial products that match their preferences. ESMA will provide technical advice to the European Commission on future initiatives in this area and issue guidance on a number of stakeholder questions on this topic.

Regarding the Taxonomy Regulation, ESMA noted that the European Supervisory Authorities intend to play an active role in ensuring that taxonomy information is relevant to investors and valuable to the market. He acknowledged that the framework is still under development and the taxonomy continues to evolve. Therefore, ESMA strives to provide practical advice where possible.

ESMA emphasizes that it welcomes feedback and input from stakeholders as it seeks to calibrate the sustainability disclosure framework appropriately. It also underlines the important role that fund managers play in financing the climate transition and insists on the vigilance necessary to reduce the risk of greenwashing and preserve investor confidence in the capital markets.

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