ESMA publishes consultation papers on integrating sustainability risks

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On December 19th, the European Securities and Markets Authority (ESMA) published three consultation papers. Two of the consultations seek stakeholder’s input on the draft of technical advice for the integration of sustainability risks into MIFID II, UCITS Directive and AIFMD. The aim with the third consultation is to gather input from stakeholder’s regarding proposed Credit Rating Agency guidelines for the disclosure of environmental, social and governance factors as part of credit rating action.

These consultations come of the heels of the consultation paper published by EIOPA at the end of November which aims to gather input from stakeholder’s on how to integrate sustainability risks into Solvency II and IDD.

MiFID II

The consultation paper covers the topics on which the Commission has requested ESMA to provide technical advice, namely: organisational requirements; risk management; product governance. It also includes suggested amendments to the ESMA guidelines on MiFID II product governance requirements and the ESMA guidelines on certain aspects of the MiFID II suitability requirements. ESMA will consider the responses it receives to this CP in Q1 2019 and expects to publish a final report by 30 April 2019.

UCITS Directive and AIFMD

The consultation paper aims at fulfilling the Commission’s request for technical advice on potential amendments to delegated acts under UCITS Directive and AIFMD regarding the integration of sustainability risks and factors in the internal processes and procedures of UCITS management companies and alternative investment fund managers (AIFMs).

Credit Rating Agencies

The consultation paper aims to provide guidance to improve the quality and consistency of the information that is disclosed alongside the issuance of a credit rating in a publicly available press release. And to improve the transparency of credit rating press releases concerning the extent to which sustainability factors have been considered as part of a credit rating.

The focus on sustainability risks from EU regulators is due to the European Commission’s Action Plan on Green and Sustainable Finance which was adopted in early March 2018.

The Commission has asked for EIOPA and ESMA to provide their technical advice the end of April in 2019. After this, the Commission intends to amend the relevant regulations. At FCG, we are convinced that integrating sustainability risks will be critical for financial institutions. Regulators and investors are paying close attention to the issue and soon it will be mandatory to report on sustainability risks. In addition, the Swedish FSA have announced their intent to include sustainability in their supervision.

If you want to discuss the consultation papers and the effects of the coming regulations, or know more about how we can help you can integrate sustainability risks into your risk management, please do not hesitate to get in touch.