Disclosure Regulation: towards greater transparency on sustainability for financial market participants

What is the context of the Disclosure Regulation?

In order to meet European requirements for combating climate change and reducing carbon emissions by 2050, in March 2018, the European Commission presented an action plan on financing sustainable growth, which includes participating in the reorientation of financial flows towards sustainable activities. The measures contained in this plan include the Disclosure Regulation of 27 November 2019 and the future regulation on the implementation of a green taxonomy at the European level.

The Disclosure Regulation aims to establish harmonised EU-wide rules on sustainability-related transparency in the financial services sector, and therefore covers all market participants (insurers, banks, management companies, financial advisors, etc.) offering financial services within the European Union. Most of its provisions will be implemented directly in France and the other Member States as of 10 March 2021. Details concerning the information to be disclosed are not yet known and will be defined in technical standards currently being drawn up by the European supervisory authorities.

What are the new transparency obligations created by the Disclosure Regulation?

The Disclosure Regulation imposes new transparency obligations on financial market participants (including insurance undertakings and fund managers) and financial advisors (who provide investment advisory services). These requirements apply at both the entity level and at the level of the life insurance products marketed or the advice provided. In concrete terms, the entities concerned by the new regulation must inform retail investors about the environmental and social impacts of their activities according to some thirty thematic indicators.

Although these entities are already subject to sustainability-related transparency obligations, the Disclosure Regulation significantly reinforces the existing provisions. It regulates the content of the information to be published as well as publication on websites.

Consequently, under the new Regulation, financial market participants and financial advisors must publish specific information concerning the consideration of ESG risks in investments. This information must be made available on the financial institution's website and in pre-contractual documents. 
In particular, it must clearly explain the risks associated with an investor's investments, linked to environmental, social or governance criteria. 

The new regulation provides for the dissemination of information on the websites of the market participants concerned, but also in the different media used to transmit pre-contractual information (financial product prospectuses and any pre-contractual documentation given to customers before they sign a contract or subscribe to a financial product), as well as in the various annual reports produced by financial market participants. In addition, these participants must ensure that this information is regularly updated in their different communication media. 

Sources: Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector; AMF website.