New ESG disclosure requirements launch for European fund managers

Amendments to the EU’s Markets in Financial Instruments Directive (MiFID) came into force on Tuesday (2 August), and one of the key changes is the introduction of new requirements and standards on ESG disclosures from fund managers.

Fund managers are now required to provide ESG-related data for all products available to the EU to their existing and prospective clients. The data must be provided in a standardized format. A total of 580 fields of data disclosure are provided by the EU, but most of these fields are conditional – required only in certain sectors and geographies – or optional. Data should be listed alongside projected financial performance.

The Financial Data Exchange Templates (FinDatEx), a collaboration between actors in the European financial services sector, launched a template in March to help fund managers prepare for the disclosure requirements, which were first confirmed by the European Commission last September.

Another key change is that financial advisers will need to ask clients about their ESG preferences when assessing options on their behalf. If clients express an interest in investing in ESG in general, or supporting a specific related theme such as renewable energy or nature conservation, investment advisers will need to accommodate this request. It is hoped that access to standardized disclosures will enable them to do this credibly. Advisers should also provide information to all clients about the general ESG impacts of their options.

And, for investors, the amendments state that they should have the appropriate arrangements in place to apply ESG filters to their decision-making, looking at both risk and impact. Investors will soon need to have a minimum share invested in activities classed as environmentally sustainable, as defined by the EU green finance taxonomy, to badge a fund as ‘ESG’. The exact percentage is to be confirmed by the end of 2022.

It bears noting that there are still several other key aspects of the MiFID rules to be clarified. Fundinfo told financial media reps last week that half of fund manager groups were yet to complete their disclosure tables, with just days to go, due to confusion as to how and where to disclose. It assessed the readiness of 157 organisations covered by the rules.

The MiFID amendment changes come less than a month after the EU finalised its green finance taxonomy rules, with the inclusion of gas as a ‘transition’ activity criticized by many green groups. The UK is likely to follow the EU’s lead and include nuclear and gas in its own taxonomy, due out later this year, much to the concern of some of the nation’s largest financial firms with net-zero strategies.

Many firms subjected to the new MiFID rules will also be required to comply with new environmental and social impact reporting requirements bring brought in to replace the Non-Financial Reporting Directive. The EU struck a provisional agreement on the Corporate Sustainability Reporting Directive in late June. Click here for an explainer of the changes, written for edie by  Richard Howitt, former chief executive of the International Integrated Reporting Council (IIRC).

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