LBA welcomes political agreement reached at EU level on new disclosure rules for sustainable investment
On 7 March, the European Parliament and EU Member States reached a political agreement on new disclosure requirements for sustainable investment and sustainability risks. The new regulation defines the form in which financial market participants and investment advisors must take account of environmental, social, and governance aspects (ESG criteria) and integrate them into the investment and advisory process.
The regulation also governs how these intermediaries must inform investors of the fulfilment of their obligation to take account of the ESG criteria. The aim is to reduce information asymmetries on sustainability questions between investors on the one side and financial market participants and investment advisors on the other side. The availability of this information is an essential prerequisite for the appropriate consideration of the associated risks to the value of investments. The regulation provides that negative effects – e.g. of financial investments leading to water pollution or destruction of biodiversity – must be disclosed in order to ensure the sustainability of investments.
Great opportunity for the financial industry
The new regulation is part of the measures to complete the capital markets union, the EU action plan on financing sustainable growth adopted in May 2018, and the legislative package to promote sustainable investment. It thus represents an important step towards fulfilling the climate goals of the Paris Agreement and the United Nations Sustainable Development Goals (SDGs) of 2015. According to the EU Commission, about 180 billion euros in additional financial resources will be needed each year to achieve the goals agreed in the Paris Agreement alone. PWC even estimates the annual investment needed worldwide to meet the SDGs at 7 trillion US dollars. This far exceeds the capacities of the public sector, which shows that a substantial part must come from the private sector and private investors. "The regulation and its new disclosure requirements for sustainable investment are designed to integrate the ESG criteria into the investment and advisory process," says Simon Tribelhorn, Director of the Liechtenstein Bankers Association (LBA). "It will provide important guidance for both financial intermediaries and investors and enable both to make better-informed decisions so that more responsible investments can be made and sustainability promoted."
"We welcome the agreement reached, and above all we see great opportunities for financial intermediaries to live up to their role and responsibility as trusted intermediaries and advisors in the best interests of our clients," says Tribelhorn.
Scope and time schedule should not be underestimated
The regulation adjusts numerous key EU enactments relating to financial services, including MiFID II, the UCITS Directive, the AIFMD, Solvency II, and other fund-specific legal acts such as ELTIF, EuVECA, EuSEF, and the Money Market Funds Regulation, thus covering the entire financial services sector. As a regulation, the new rules have direct effect and do not need to be transposed into national law. The rules are EEA-relevant and therefore also apply to Liechtenstein. The regulation will enter into force on the 20th day following its publication in the Official Journal of the European Union and must be applied 12 months after its publication.
"The new requirements must not be underestimated either in their scope or in terms of the time schedule – 12 months for implementation is short, illustrating the urgent need for action," Tribelhorn concludes. The momentum is enormous as far as the sustainability agenda is concerned. On 11 March, the European Parliament's Committee on Economic and Monetary Affairs (ECON) approved the regulatory proposal to introduce an EU-wide classification system (taxonomy) for climate-friendly and environmentally friendly financial products, thus creating a uniform understanding of sustainability and combating greenwashing. On the same day, the European Council published the final compromise proposal for an EU regulation to introduce low-carbon benchmarks. The final votes in the plenary of the European Parliament are scheduled for 26 March 2019.
Sustainability is a core concern of the LBA
Sustainability has always been an important concern of the Liechtenstein banking centre and, in addition to stability and quality, is also one of the three pillars of the future strategy, the Roadmap 2020. The Bankers Association's engagement in sustainable finance is also part of this fundamental commitment. In this context, the LBA joined the International Network of Financial Centres for Sustainability (FC4S) in April last year, which now comprises 20 international financial centres.