The SFDR Regulation (Sustainable Finance Disclosure Regulation) aims to establish a pan-European framework to facilitate sustainable investments and provides for a harmonised approach to transparency requirements for investors regarding sustainable investments in the financial services sector of the European Economic Space. Financial market participants must explain how they integrate sustainability risks into investment decisions and recommendations (Art. 3) as well as define remuneration rules for products that are consistent with sustainability risks (Art. 5)
This type of detail must also be provided at the level of individual products, in pre-contractual information, estimating the likely impacts of sustainability risks on the performance of financial products (Article 6); does not mean that all products will have to adopt sustainability rules, but those who choose this path will still have to motivate. All financial products (4) should therefore fall into three categories, reflecting an increasing focus on sustainability.
SUSTAINABILITY RISK
environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact in the value of the investment (wording of the regulation)
AN OVERVIEW OF THE SFDR CATEGORIES
Sustainable investment objective
Promotes ESG characteristics
Basic ESG criteria
No ESG criteria applied
ESG in the core product
Information on how ESG characteristics are respected. Where there is a benchmark, information on whether and how that benchmark is consistent with those features.
ARTICLE 8
ARTICLE 9
Where there is a benchmark, it shall be indicated how the designated index is in line with that target and why and how the designated index differs from a general market index. In the absence of an index, it should be explained how the sustainable investment target is achieved. If a financial product has the objective of low-carbon exposure with a view to achieving the long-term objectives for combating global warming as set out in the Paris Agreement, this shall be stated.
4. UCITS, portfolio management, alternative investment funds, pension products or schemes
SFDR: SUSTAINABILITY RISKS IN THE SPOTLIGHT
AMUNDI FUNDS
No ESG criteria
(Sustainability risks not integrated in the product)
(Integration of the risks)
AND CATEGORIES 8 AND 9 PROVIDE FOR SPECIFIC INFORMATION REQUIREMENTS AS FROM 10 MARCH
MIN
MAX
ART.
6
9
8
On 3 September 2020, the SRD II, Directive on the rights of shareholders issued by the European Union ("Shareholder Rights Directive II" or "SRD II") came into force with the following objectives:
INVOLVE SHAREHOLDERS
encouraging them to participate more actively in corporate governance and giving them greater opportunities to control remuneration policy and transactions with related parties, also cooperating together
THE SHAREHOLDER RIGHTS DIRECTIVE II: AN OPPORTUNITY FOR ENGAGEMENT
STRENGHTENING THE TRANSPARENCY OF COMPANIES
by providing more information about their corporate governance, to investors and in general, and allowing them to be able to know the identity of their shareholders and the voting policies of their institutional investors, so as to allow a more profitable dialogue on corporate governance issues
FOSTER BUSINESS GROWTH
and competitiveness
ESMA5 (7) also contributed to the sustainable finance issue by proposing to integrate clients’ preferences on sustainability in the profiling phase. Intermediaries will be called upon to review client profiling processes, provide advice and assessment of adequacy, integrating them with ESG factors. . They will also need to review the adequacy policies with the introduction of further controls to verify that the investment product being advised is in line with the ESG preferences declared by the client in the profiling phase (revision of the MIFID II Directive).
7. Established with effect from 1 January 2011 with EU Regulation 1095/2010, ESMA is a European supervisory authority that brings together the national financial market supervisory bodies of each EU Member State. Together with the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), it is an integral part of the European Supervisory System.
Investors' ESG preferences matter
The Taxonomy Regulation establishes the birth of the first system in the world to classify sustainable economic activities.
GREENWASHING
The practice of some companies or organisations to gain an unfair competitive advantage based on misleading or false claims in order to present as environmentally friendly a financial product that does not actually meet basic environmental standards.
The taxonomy identifies six environmental and climate objectives:
The Taxonomy Regulation also brought in the creation of the International Platform on Sustainable Finance, a permanent group of public and private sector experts to develop sustainable finance policies and tools.
The objective is clear: to establish "green" and widely recognized criteria to collect more public and private funding and alllow the EU to be "carbon neutral" by 2050, as established in the European Green Deal. Ultimately, the aim is to ban greenwashing i.e.: the incorrect practice of some companies distorting their data on environmental impact.
To be eco-compatible, an activity must meet the following criteria:
contribute positively to at least one of the six environmental objectives
Climate change mitigation
TAXONOMY: CHECKMAtE TO greenwashing
Climate change adaptation
The sustainable use and protection of water and marine resources
The transition to a circular economy
Pollution prevention and control
The protection and restoration of biodiversity and ecosystems
do not produce negative impacts on any other objective
be carried out in compliance with minimum social guarantees (for example, those provided for in the OECD guidelines and UN documents)
One of the legislator’s initiatives to ensure greater clarity and transparency for investors is the introduction of two new categories of low-carbon benchmarks with similar objectives but different target levels:
aiming to reduce the carbon footprint of a standard portfolio. More precisely this index type should be defined by taking into account the companies that follow a scientific and measurable decarbonisation objective; which takes into account the long-term global warming goal determined in the Paris Agreement
EU Climate Transition Benchmark
aiming to select only securities that contribute to the achievement of the 2°C objective established in the Paris Agreement on climate change
CERTAIN MINIMUM REQUIREMENTS FOR THESE INDEX CATEGORIES HAVE ALSO BEEN DEFINED IN 2020
specific investment exclusion criteria (such as companies involved in activities involving controversial weapons or those active in tobacco cultivation and production).
An indication of which environmental, social and governance factors (ESG factors) they consider and how they are reflected in each benchmark index or benchmark family (5/6)
5. Commission Delegated Regulation (EU) 2020/1816 of 17 July 2020 6. Commission Delegated Regulation (EU) 2020/1817 of 17 July 2020
TWO NEW BENCHMARKS TO HELP INVESTORS IN THEIR CHOICES
EU Paris-aligned Benchmark
puntano a selezionare solo gli elementi che contribuiscono al raggiungimento dell’obiettivo dei 2 °C stabilito nell'Accordo di Parigi sui cambiamenti climatici
E
S
G
the timetable of the new regulatory framework
IMPORTANT INFORMATION This material is for professional clients only. It is provided only for information purposes, is not a recommendation, financial analysis or advice, and does not constitute a solicitation, invitation or offer to buy or sell any security, fund units or services. Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of [DATE]. The views expressed are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material is based on sources that Amundi considers to be reliable at the time of publication. Data, opinions and analysis may be changed without notice. Amundi accepts no liability whatsoever, whether direct or indirect, that may arise from the use of information contained in this material. Amundi can in no way be held responsible for any decision or investment made on the basis of information contained in this material. Edition: February 2021
SFDR
EU TAXONOMY
CLIMATE BENCHMARK
CHANGES TO EU MIFID II, EU UCITS AND AIFMD
SRD II
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