EU Sustainable Finance Package 2023

Last week (13th June 2023) the European Commission published a sustainable finance package of measures building on an earlier EU sustainable finance framework. The package includes a number of elements aimed at clarifying and improving the existing framework, whilst also enhancing usability, and transparency. Key elements include:

EU Taxonomy Delegated Acts

The new package sets out the EU’s environmental taxonomy, including activities and associated criteria for four environmental objectives under the Taxonomy Regulation. This includes the Technical Screening Criteria (TSC) for activities that make a substantial contribution to the environmental objectives for which TSCs are not already available. The objectives include: (i) transition to a circular economy, (ii) control or protection and restoration of biodiversity, (iii) pollution prevention and (iv) use and protection of water and marine resources. Amendments have also been made to the Taxonomy Climate Delegated Act in relation to climate mitigation and adaptation.

Recommendation on transition finance

With the new package, the Commissions is providing additional guidance on the voluntarily use of the current sustainable finance framework by companies and financial institutions. This includes practical examples and explanations on using EU tools (such as the Taxonomy) to identify and manage climate related risks. It also includes definitions of “transition”, “transition finance” and “transition plan”.

Regulation on ESG ratings providers

In an attempt to improve transparency, the Commission has published new rules for the regulation of ESG ratings providers alongside three Annexes and a summary of the Commission’s impact assessment for the proposal. These rules aim to improve the reliability and transparency of ESG ratings and help investors to make better informed decisions on sustainable investments. The proposal also includes the requirement that ESG ratings providers be authorised by ESMA.

Commission communication

A Commission Communication aiming to provide guidance on the practical application of the sustainable finance framework is included in the recent package. This also acknowledges he need for certain improvements to SFDR (e.g., around usability, the potential for greenwashing and certain legal aspects) which the Commission aims to address following a consultation to be launched later in the year.

The package includes the following documentation:

• A Proposal for a Regulation on ESG ratings & Annexes

• The final Delegated Act(s) & Annexes (technical screening criteria) under the Taxonomy Regulation, namely: (1) the Environmental Delegated Act (annex 1, annex 2, annex 3, annex 4, annex 5, annex 6, annex 7) and (2) the amending Climate Delegated Act (annex 1, annex 2).

• Commission Notice on the interpretation and implementation of certain legal provisions of the Taxonomy Regulation and links to SFDR (FAQs)

• Usability guide on the Taxonomy Regulation.

• Commission Recommendation on facilitation finance for a transition to a sustainable economy (and Annex).