The ESG regulation journey

ESG remains on top of the agenda for asset managers, insurance companies, pension funds and portfolio managers. The financial industry has a key role to play in supporting the European Action Plan adopted in March 2018.

What is ESG?

ESG refers to three main factors - Environmental, Social and Governance - responsible investors consider to evaluate how far advanced are companies with sustainability. ESG factors are non-financial factors that can help in their analysis process to identify material risks and growth opportunities.

ESG Criteria

 

An ESG investing Approach needs to consider a number of criteria from each of the three pilars: 

  • E (Environmental): carbon emissions, resource and waste management, energy efficiency or climate change
  • S (Social): human rights, health and safety, data privacy and security or diversity
  • G (Governance): financial reporting, business ethics, board diversity and structure or executive remuneration

The EU ESG-related Regulations

In 2018 the European Commission issued four legislative proposals to address several areas of the action plan on sustainable Finance.

 

Taxonomy Regulation

The Taxonomy Regulation establishes the conditions and the framework to create a common classification system for economic activities to be considered environmentally sustainable. It focuses on climate change mitigation and adaptation, but also requires economic activities to do no significant harm with regards to the other environmental objectives.

 

Disclosure Regulation

It introduces obligations for institutional investors and asset managers to disclose how they integrate ESG factors in their risk management and investment decision-making processes.

 

Benchmarks Regulation

This regulation creates a new category of low-carbon benchmarks with the introduction of two new climate-related benchmark classification - EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks - helping investors to better understand the relative carbon impact of their investments and prevent greenwashing.

 

Sustainability preferences

It includes ESG considerations into the advice that investment firms and insurance distributors offer to their clients under MiFID II and the Insurance Distribution Directive.

 

 

Your ESG journey with IDS

 

In the future, ESG can be expected to affect the entire portfolio management process as well as to be incorporated into other regulations (such as CRR and Solvency II).

 

Our experts can help you tackle your ESG challenges.

 

> Contact us today!

Related content

 

> European Commission

 

> EIOPA

 

> FinDatEx

 

> European Green Deal

 

> Paris Agreement