EU Taxonomy Timeline is Out of Order, Says EFAMA

Asset managers need more time to compile the relevant information from corporate disclosures.

The European Commission (EC) should ensure that corporate rules for disclosing taxonomy alignment are finalised and in practice before additional requirements for asset managers are enforced, according to Dominik Hatiar, Regulatory Policy Advisor for the European Fund and Asset Management Association (EFAMA). This follows the publication of a consultation on a draft delegated act specifying disclosure requirements under Article 8 of the Taxonomy Regulation, published 7 May, 2021.

The delegated act outlines mandatory disclosures from companies outlining the extent to which their activities can qualify as socially and environmentally sustainable, with reference to the Taxonomy’s guidelines.

However, while the Taxonomy Regulation coming into force from January 2022, the delegated act for Article 8 will be delayed until the following year, to allow time for compliance.

In its response to the consultation, EFAMA welcomed the Commission’s proposal for a two-year transition period, but has called for greater coordination of compliance deadlines with other incoming disclosure rules. “This delegated act will provide the essential underlying information needed by investors on corporates’ taxonomy alignment, so it should be the first step, with other regulations coming after it. Currently, the delay is going to have a serious knock-on effect at both an entity and product level for asset managers who have their own disclosure requirements to fulfil during this transition period,” Hatiar told ESG Investor.

While delaying until 2023 allows corporates more time to best identify and disclose their social and environmental economic activities in line with the Taxonomy Regulation’s indicators, this comes too late for asset managers who will be subject to the regulatory technical standards (RTSs) in Level 2 of the Sustainable Finance Disclosure Regulation (SFDR), he explained.

The Level 2 RTSs are expected to apply from January 2022, requiring asset managers to provide underlying evidence that supports the marketing of their products as either Article 6 (not green), 8 (light green) or 9 (dark green). This will then inform the extent to which asset managers’ products are aligned with the overall taxonomy.

“Corporate and asset manager disclosure requirements simply can’t be introduced at the same time, because asset managers first need sufficient information from their holdings to inform their own compliance with Article 8 of the taxonomy,” Hatiar said.

EFAMA also recommended greater consistency in how taxonomy alignment is measured under the Non-Financial Reporting Directive (NFRD), now known as the Corporate Sustainability Reporting Directive (CSRD), and SFDR.

“The representation and measurement of taxonomy alignment must be consistent in terms of methodologies at the entity and product levels. Otherwise, an SFDR assessment of taxonomy alignment could deviate from the NFRD’s issuer’s assessment of taxonomy alignment and therefore require […] two separate methodologies,” EFAMA said.

This follows the recent progress made by the EC on its Sustainable Finance Action Plan. On 21 April, 2021, the EC adopted a package of measures, including the proposed updates to the CSRD and the draft Climate Delegated Act under the Taxonomy Regulation.

The draft Climate Delegated Act was formally approved on 4 June, 2021, establishing the technical screening criteria for measuring the extent to which economic activities contribute to climate change mitigation or climate change adaptation.

There will be four other delegated acts alongside the drafts for Climate and Article 8. All of these acts aim to ensure financial advisors, asset managers and insurers include sustainability considerations across their operations and in their advice to clients.

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