ESBG response to ESMA’s consultation on guidelines of MiFID II suitability requirements

On 27 April 2022, ESBG submitted its response to the European Securities and Markets Authority’s (ESMA) consultation on guidelines on certain aspects of the MiFID II suitability requirements. Published in January 2022, the paper builds on the text of the 2018 ESMA guidelines, which are now being reviewed following the adoption by the European Commission of the changes to the MiFID II Delegated Regulation to integrate sustainability factors, risk and preferences into certain organisational requirements and operating conditions for investment firms.​

In our response, we stressed that ESMA should give investment firms more flexibility in implementing the new rules. In particular, we consider that the process for collecting client information is too detailed and impractical for both the client and the investment firm, hence we proposed that it should be optional. We also noted that the two-step approach of the suitability assessment is overly restrictive and time-consuming. For these reasons, we urged that the firm be permitted to collect all information from the customer at once.

Moreover, we understand that Level 2 Regulation allows an investment firm to recommend a product that doesn’t meet the client’s sustainability preferences, if the issue is explicitly stated and explained to the client as well as documented in the suitability report. This practice is contrary to the guidelines which require the client to first adapt his or her sustainability preferences before any further discussion. Additionally, we recommended that collecting extensive client’s information should not always be necessary when, for example, an investment firm does not have any financial instruments included in its product range that would meet the client’s sustainability preferences.

Lastly, we proposed an alternative treatment of investment advice with a portfolio approach in terms of collecting client information on sustainability preferences. We believe it would be more beneficial for the client if firms were allowed to collect such information in each advice session rather than for the entire portfolio as in the case of providing portfolio management.​


Strengthening the quality of corporate reporting and its enforcement in the EU

The EU corporate reporting framework has been developed with the purpose of ensuring that companies publish the right quantity and quality of relevant information with the ultimate purpose of allowing investors and other interested stakeholders to assess companies’ performance and governance and to take decisions based on that.

The consultation aims to evaluate the impact of the EU framework on the three pillars of high quality and reliable corporate reporting: corporate governance, statutory audit and supervision. This position paper is based on ESBG’s response to the consultation.
The European Commission adopted its proposal for a EUGBS in July 2021 and later launched a public consultation. In this context, ESBG has recently finalised a position paper that indicated some of the main concerns with the adopted proposal.


European Commission Banking Package proposal

On February 22, ESBG responded to the European Commission “have your say" consultation on the Banking Package proposal, which transposes the final elements of the Basel III reforms in the EU regulatory framework and pursues other prudential and supervisory objectives.

ESBG supports the application of the output floor at the highest level of consolidation. The envisaged single-stack approach however requires that supervisory powers are more clearly framed and that the arrangements mitigating its impact are of a longer-term nature or permanent. The transitional arrangements for residential real estate, unrated corporates and derivatives should be made permanent or at least phased out based on the actual observation of structural changes in the EU banking market. Moreover, these flexibilizations should be extended also to institutions using the standardised approach to maintain a level playing field.

We recognise the proposal to disregard historical operational losses for all institutions within the calculation of capital requirements for operational risk, meaning that the internal loss multiplier (ILM) is effectively being set equal to one. This is a discretion provided in the Basel framework.

As regard to equity exposures, we support the implementation of a new category with a lower 100% risk weight (RW) for long term strategic equity investments.

Regarding specialised lending, we support the proposal to increase the risk sensitivity for unrated object finance exposures.

With respect to real estate exposures, the proposed requirements for non-income producing real estate should not go beyond the Basel standards. We then support the increased risk sensitivity for acquisition, development and construction (ADC) lending.

The threshold to use the simplified credit valuation adjustment (CVA) method should be aligned with the provision in the Basel framework.

We warn against an excessively restrictive application of the credit conversion factor (CCF) to trade finance instruments and to other exposures.

The proposed centralization of the disclosures is appreciated. Small and non-complex institutions should be exempted from reporting and disclosing requirements in the area of Environmental, Social and Governance (ESG). Further proportionality elements could then be envisaged.

Furthermore, the decision to retain important EU features such as the SME and the Infrastructure supporting factors and the CVA exemptions is appreciated.


Proposal for a Regulation on European green bonds

Proposal for a Regulation on European green bonds

Establishing a European green bond standard (‘EUGBS’) was an action in the Commission’s 2018 action plan on financing sustainable growth and is part of the European Green Deal.

The European Commission adopted its proposal for a EUGBS in July 2021 and later launched a public consultation. In this context, ESBG has recently finalised a position paper that indicated some of the main concerns with the adopted proposal.


​DORA should not increase operational and financial burden for ESBG members and their clients

BRUSSELS, 9 April 2021​​ – Banks have been among the first companies to install computers and create large data centres. This has contributed to the efficiency of their role of financing the economic activity and intermediating between savers and borrowers. 

As IT architecture has become essential for economic activity, the risk of disruption of this architecture and its consequences for the banks and their clients are of paramount importance. Consider for example the damage done by data breaches, ransomware or service outage of cloud service providers.

The European Savings and Retail Banking Group (ESBG) is aligned with the goal pursued by the Digital Operational Resilience Act (DORA) to create a comprehensive framework for the digital operational resilience of the financial sector in the EU. We welcome the initiative to bring together ICT risks in finance in this legislative proposal that advocates for a level playing field approach. Since the implementation of this framework implies a lot of policy work for the European Supervisory Authorities, we suggest however that the entry into force would be 30 months after the publication of the act.

As for the content of the act, ESBG thinks rules should be adjustable to the different business models in our membership. Smaller financial institutions should be excluded from the framework. We believe that the direct supervision of critical ICT service providers by the ESAs should cover only large, internationally active service providers. Predominantly nationally active critical ICT service providers should be supervised at the national level to avoid incompatibilities with national security laws. We advocate for the creation of a reporting hub at the national level and that the reporting at the EU level is done by the National Competent Authorities. We do not oppose to the creation of an EU hub receiving all reporting but if it is finally set up, it must replace all pre-existing reporting and risks should be properly assessed to ensure the highest levels of cybersecurity.

Finally, the cost of supervising the ICT-providers should not be on the banks or even less on the bank customers’ shoulders. Just as banks rightfully support the cost of financial supervision, ICT providers should bear the cost of their supervision.



​​​MiFID II suitability assessment & sustainability risks

We strongly believe that the same products must be considered as sustainable throughout all EU legislation. The requirements for sustainable products in MiFID II and the SFDR must be harmonised. The requirements for the target market assessment according to MiFID II may, not go beyond the existing requirements of the SFDR.

Also, in view of greater legal certainty and consistency, a unanimous implementation date should be set for all different pieces of legislation related to Sustainable Finance that have been adopted recently. Regarding the implementation of the MiFID II Delegated Directive we call for the inclusion of an appropriate provision. The national transposition should be completed no later than six months prior to the application deadline.

Identified Concerns

ESBG is supportive of the European Commission’s aim to create a strong framework for sustainable investment that supports the green transition and understands that the current proposals are central to this. However, as currently drafted, we have serious concerns that these proposals will, in fact, restrict customers’ access to sustainable finance by unduly limiting the range of products that banks, fund managers and insurers are able to offer them. Restricting the range of available products for end investors would seriously jeopardise the CMU objective of improving investors’ access to capital markets.

We understand the desire to include a direct reference to the Sustainable Finance Disclosures Regulation (SFDR) in MiFID II. However, it is paramount that these references, including the definition of “sustainability preferences”, are aligned with SFDR. Unfortunately, instead of simply inserting the necessary references to Article 8 products (i.e. products promoting environmental and social characteristics) and Article 9 products (i.e. products pursuing sustainability investments), the proposals introduce additional requirements for Article 8 products in MiFID II, which are confusing and inconsistent with the SFDR framework. First, the additional reference to Article 2(17) SFDR creates a new category of Article 8 products which would need to integrate additional sustainable investment considerations intended only for Article 9 products. Second, the draft delegated acts also require the consideration of principal adverse impact (PAI) for Article 8 products.

These additional requirements for Article 8 products would mean that a customer who expresses sustainability preferences cannot be offered an Article 8 product that does not meet these additional conditions, despite the product being marketed as promoting environmental or social characteristics under SFDR. This will considerably restrict the available product offering excluding many products (including some which comply with national eco-label standards) from being offered to customers who express a preference for sustainable products. It risks sustainable finance becoming a niche market, available only to customers specifically looking for an Article 9 product. This restriction placed on the distribution of sustainable products risks becoming an obstacle to the transition to a green EU economy by preventing the mainstream take-up of sustainable retail financial services products.

Also, in the recent months, different pieces of legislation related to Sustainable Finance have been adopted, each one having different applicability deadlines.

Why Policymakers Should Act

The introduction of additional requirements for Article 8 products that go beyond the requirements of the SFDR has the risk that a strategy product may be considered sustainable under the SFDR, but it is treated as unsustainable in the target market according to MiFID II e.g. if a financial market participant decides not to report on the adverse impacts on sustainability. A correction of this mismatch is needed.

The regulation in sustainable finance in the last months may cause legal uncertainty and confusion to financial market participants. A common implementation period for all interdependent regulations would help enhance legal certainty and consistency and facilitate the compliance of financial market participants.


The delegated Regulation of MiFID II is part of a broader Commission’s initiative on sustainable development. It lays the foundation for an EU framework which puts sustainability considerations at the heart of the financial system to support transforming Europe’s economy into a greener, more resilient and circular system in line with the European Green Deal objectives. The Commission announced in the 2018 Action Plan the integration of sustainability in so-called fiduciary duties in sectoral legislation.

The draft MiFID II delegated act, regarding product governance, lays down further details on the integration of sustainability preferences in the product oversight and governance process for both investment firms manufacturing financial instruments and their distributors.

Under the existing MiFID II framework, an investment firm which manufactures financial instruments for sale to clients shall maintain, operate and review a process for the approval of each financial instrument and significant adaptations of existing financial instruments before it is marketed or distributed to clients. The product approval process shall specify an identified target market of end clients within the relevant category of clients for each financial instrument and shall ensure that all relevant risks to such identified target market are assessed and that the intended distribution strategy is consistent with the identified target market. Further, Article 24(2) MiFID II requires investment firms to ensure that those financial instruments are designed to meet the needs of an identified target market of end clients within the relevant category of clients, the strategy for distribution of the financial instruments is compatible with the identified target market, and the investment firm takes reasonable steps to ensure that the financial instrument is distributed to the identified target market.

The new, draft MiFID II delegated act modifies Commission Delegated Regulation (EU) 2017/565 in the following, very central way: It integrates sustainability factors in the suitability assessment. Under the existing MiFID II framework, firms providing investment advice and portfolio management are required to obtain the necessary information about the client’s knowledge and experience in the investment field, their ability to bear losses, and objectives including the client’s risk tolerance, in order to enable the firm to provide services and products that are suitable for the client (suitability assessment). The information regarding the investment objectives of the client includes information on the length of time for which the client wishes to hold the investment, his/her preferences regarding risk taking, risk profile, and the purposes of the investment. However, the information about investment objectives generally relates to financial objectives, while non-financial objectives of the client, such as sustainability preferences, are usually not addressed. ​


Protecting a flower

Prudential treatment of assets and risk management​

ESBG believes that the green supporting factor should be looked at in careful detail in order to ensure that it is a secure tool. The SME supporting factor was established after a lot of research and data provided by banks, which should be the case in this instance. 

Regarding the brown penalising factor, ESBG is not in favour of such a tool. Penalization of financing to more exposed sectors to climate risk shall be avoided. It could raise serious concerns, and in particular, it may burden their transition and increase social risks if the needed steps to transition haven’t been taken. 

Finally, a unanimous set of definitions enhances legal certainly and consistency. Similarly, aligned implementation deadlines would be very helpful. Apart from that, specific guidance on what is expected from financial market participants would be appreciated. It would facilitate the better organisation and preparation to comply with the new rules. 

Identified Concerns

ESBG recognises the need to integrate ESG considerations into the risk management process. However, it identifies some lack of harmonisation between the guidance provided by the EBA and ECB. In particular, in the EBA guidelines, the risks of climate change for the financial performance of borrowers are identified as physical risks, such as risks to the borrower that arise from the physical effects of climate change, including liability risks for contributing to climate change, or transition risks, e.g. risks to the borrower that arise from the transition to a low-carbon and climate-resilient economy. The ECB guide, on the other hand, includes in the definition of climate related and environmental risks not only risks deriving from the effects of climate change but also environmental degradation. Also, the EBA guidelines apply from 30 June 2021. In particular, the guidance referring to loan origination procedures, including the assessment of borrower’s creditworthiness and loan pricing, applies to loans and advances that are originated after 30 June 2021. The ECB will apply from the final publication date, i.e. probably from the end of 2020.​​

Why Policymakers Should Act

Prudential treatment of exposures, with the introduction of a green supporting factor or a brown penalising factor, should be risk-based to avoid jeopardising the financial stability of financial institutions and the whole economy. Common definitions, as well as harmonised and realistic implementation deadlines of interdependent rules used by all regulatory and supervisory European bodies, ensure legal certainty and trust. This also facilitates the compliance of financial market participants with the new regulations. Ensuring this, in our view, should be one of the major points to focus on for EU decision-makers.


Climate change and the response to it by the public sector and society in general have led to the identification of new sources of financial risk to which the regulatory and supervisory community is paying increased attention. Notably, climate change gives rise to both transition risk and physical risk. In this context, both public sector policy choices and the expectations of stakeholders are likely to change over time. This makes it essential that financial institutions be able to measure and monitor their exposures in order to deal with transition and physical risks and understand how they can be affected by changes in societal expectations.

In line with the expectation that consideration of ESG factors will be incorporated into all regulatory products, the EBA included references to green lending and ESG factors in its guidelines on loan origination and monitoring which will apply to internal governance and procedures in relation to credit granting processes and risk management. Based on the guidelines the institutions will be required to include the ESG factors in their risk management policies, including credit risk policies and procedures. These guidelines are the first specific policy product developed by the EBA incorporating sustainability considerations.

Furthermore, the revised CRR 2/CRD 5 package (Article 98(8) of CRD 2) calls on the EBA to assess the potential inclusion of ESG risks in the supervisory review and evaluation process performed by competent authorities. To that end, the EBA’s assessment must comprise, inter alia:

  • the development of a uniform definition of ESG risks including physical risks and transition risks;
  • he development of criteria for understanding the impact of ESG risks on the financial stability of institutions in the short, medium and long terms;
  • the arrangements, processes, mechanisms and strategies to be implemented by the institutions to identify, assess and manage these risks; and ​
  • the analysis methods and tools to assess the impact of ESG risks on lending and the financial intermediation activities of institutions.​


Eco labels

EU Ecolabel for financial products

ESBG fully supports the development of a voluntary label to increase transparency for consumers on sustainability. However, regulators should firstly observe market developments and make sure that an EU standard will not complicate future harmonisation.

It is also important that such a label underpins an effective transition of the economy to a carbon-neutral society and sustainable development. Therefore, labels should not only apply to products that are strictly low-carbon but also support transition and enabling activities to promote a faster, broader, and more effective transition. Both low carbon activities, transition, and enabling activities should be included in the scope of the EU ecolabel.

With regards to the traceability of green deposits, an alternative solution of the current proposal of ring-fencing with similar outcome could be to trace the use of the assets a bank receives from the green deposits by ensuring that the right proposition of the assets coming from deposits are used to finance ecolabelled projects. It appears increasingly likely that banks will have to trace their green lending for risk reasons in the EU, by “tagging” the assets they finance.

Identified Concerns

Our main concerns are the asset classes that can be labelled, and the reality-check applied to the thresholds defined for each asset class. The ambition of the ecolabel should be maintained as high as possible, but also adapted to the asset class considered, and taken into account when defining the thresholds of green for each type of fund. ESBG is in favour of a label that is both environmentally ambitious and realistic, to ensure that thanks to the label, more and more dedicated green investment strategies will be developed for retail and institutional investors.

Another important question is the way the EU Taxonomy will be integrated in the EU ecolabel: the level of granularity of information that can be obtained from corporate issuers and banking clients is most of the time not adapted to the technical requirements (criteria, metrics) listed in the EU taxonomy. An example: the technical screening criteria for all environmental objectives will be ready by 31 December 2022. However, the EU Ecolabel for financial products is expected to be adopted in autumn 2021. It is not clear how the EC will ensure the alignment.

Moreover, we are concerned about the correct way of tracing the use of green deposits. The current proposal of the Commission refers to the option of “ring-fencing” green deposits. However, this option could cause a balance sheet burden for banks as well create regulatory issues relating to complying with liquidity requirements.

Why Policymakers Should Act

Building on the EU taxonomy, EU standards and labels for sustainable financial products would protect the integrity of and trust in the sustainable financial market, as well as enable easier access for investors seeking those products. An EU standard accessible to market participants would facilitate channelling more investments into green projects and would constitute a basis for the development of reliable labelling of financial products. Labelling schemes can be particularly useful for retail investors who would like to express their investment preferences on sustainable activities. However, the lack of labelled financial products may prevent investors from directly channelling their funds into sustainable investments.

Moving on to the traceability of green deposits, the idea of ring-fencing sounds right at first sight, but it could at minimum complicate the debate and the hopes many have on making it work and become mainstream.

A smart Ecolabel scheme, which takes into account the considerations above and below, will certainly be of added value to the EU’s financial system.


The development of the EU Ecolabel for Financial Products is based on the European Commission’s 2018 Sustainable Finance Action Plan. The EU Ecolabel is a voluntary scheme that provides producers with an opportunity to market their products or services with a label of environmental excellence, provided that they fulfil the criteria on environmental performance.

In December 2019, the Commission’s Joint Research Centre (JRC) published its 2nd technical report on the ecolabel for retail financial products, with a draft proposal on the scope and criteria for granting an ecolabel to such products within the EU.

While the initial focus of proposals for an EU Ecolabel for retail financial products has been on investment products subject to the PRIIPs regulation (equity, fixed income and hybrid funds, including UCITS and AIMs; as well as IBIPs), the scope has now been extended to include savings deposit and fixed-term deposit accounts.

According to the proposal, in order to award the EU Ecolabel to the service of managing a deposit account, the link must be established between:

  • the decision of a retail customer to open an account and deposit money with a credit institution;
    the lending of the money deposited to new green projects and economic activities, and;
  • the payment of interest and the reporting of the associated environmental benefits to the account holder

In particular, JRC sets three requirements that allow for the earmarking of green loans and traceability of the link between each retail customer’s deposited money and their contribution to the total value of the green loans granted:

  • Green loan to deposit ratio: At least 70% of the value of the total deposits shall be used to make green loans and/or to invest in green bonds
  • Green loans made using the deposited money: Loans contributing to the green loan to deposit ratio shall only be granted to green economic activities
  • Internal ring fencing of the deposited money: The money held in deposit and granted as loans shall be strictly ring fenced within the accounts of the Credit Institution


Houses inuslation

​​​EU Taxonomy

The specificities of retail banking should be taken into account in the framework in order to make sure that the taxonomy works for all types of economic activities, such as SME lending, energy efficiency of residential real estate.

While the technical screening criteria of the taxonomy must remain consistent and encourage capital reallocation towards a sustainable economy, they should be selected so that they may be applied to all relevant financing activities without creating an excessive administrative burden for some players. In other words, all financial institutions should have the tools at hand to play a vital role in financing the transition to a more sustainable EU economy. Definitions should therefore be clear, and applicable indicators should ensure a sufficient degree of comparability.

Where criteria already exist in relevant legislation, such as in forestry, those criteria should be used and referred to. As a matter of legal certainty, financial contracts concluded before the framework to facilitate sustainable investment (Taxonomy Regulation) and the associated delegated acts enter into force should be grandfathered, out of their scope. Generally speaking, we regard it as important that the clients keep freedom of choice on whether to invest or lend in sustainable products.

A workable and dynamic taxonomy is essential to ensure a homogeneous inclusion of environmental considerations throughout the EU. The taxonomy needs to take into account SME lending and improvement of the energy efficiency of private real estate.

Also, to avoid conflicting objectives between environmental protection concerns and social objectives (prosperity and employment) the taxonomy and its delegated regulation should ascertain that greening the economy is fully coherent with the social aims supported by retail banks, sustaining local communities and SMEs, which is most crucial for innovation and job creation.

The European Commission should make sure regulation around sustainability always takes into account a policy measure’s social impact. Although ESBG acknowledges the fundamental importance of the fight against climate change, ESBG stresses the importance of building a holistic framework fostering both environmental and social goals. As the European Commission itself also pointed out in its action plan, the concept of sustainability rests on environmental and social considerations alike. Thus, we urge the decision makers to accelerate and focus their work on establishing social criteria. Beyond that, good governance principles and a commitment to good corporate citizenship are especially important in the financial sector.

Finally, considering that the Level 2 work will not be ready before the end of the year, more time is needed for a solid consultation process and in-depth discussion with stakeholders. Also, it would be reasonable to adjust the date of entry into force of the Regulation. The response to the COVID-19 outbreak has shifted the focus of financial institutions to essential regulatory and supervisory actions and is significantly limiting the available time of institutions to prepare the implementation of new legislation.

Identified Concerns

ESBG fully acknowledges the need to address the lack of clarity on what can be considered environmentally sustainable for investment purposes, to scale up green investment to meet the EU’s climate and energy targets for 2030 and 2050. The regulation establishing a framework to facilitate sustainable investment will play a central role, as it will not only harmonise national public taxonomies but also define standardised disclosure obligations on financial market participants. It should hence be the basis for upcoming legislations relating to sustainability in finance. As an indispensable milestone, the taxonomy should be made operative before regulatory measures relying on it are implemented and the different sustainable finance legislative proposals should be synchronised. Considering that the Level 2 work will not be ready before the end of the year in combination with the response to the COVID-19 outbreak that has shifted the focus of financial institutions to essential regulatory and supervisory actions and is significantly limiting the available time of institutions to prepare the implementation of new legislation, there is not enough time for a solid consultation process and in-depth discussion with stakeholders as well as for its implementation. ​

Why Policymakers Should Act

Because of the key role of the regulation establishing the sustainable finance taxonomy, defining a workable framework is absolutely necessary to ensure a homogeneous inclusion of environmental considerations throughout the EU and ensure the financing of the transition towards a low-carbon economy. Furthermore, it is important for policymakers to acknowledge the dynamic inherent to the transition process in order to reflect it in the taxonomy and make sure adequate incentives can be put in place. This is something the static approach of the current taxonomy cannot do. Also, securing simple and clear rules that are being applied with respect to the principle of proportionality contributes to the facilitation of the taxonomy regulation’s understanding and use by all financial market participants. Apart from that, it is essential for policy makers to ensure equal opportunities for all financial participants taking into consideration that the transition towards a more low-carbon EU economy involves structural sectoral changes, and changes in business models and skill requirements that take time and additional resources to implement, especially for SMEs. Lastly, given that a social taxonomy is already in the Commission’s plans and considering that banks are already requested to report their social impact although there is no social taxonomy yet, a common understanding of “Social Objectives” will be helpful for the industry. We urge policy-makers to also focus on the social dimension of sustainable finance as savings and retail banks in Europe have been doing for a long time.​​


Acknowledging the urgent need to further promote sustainable growth, the European Commission published an Action Plan on Sustainable Finance in March 2018. The Action Plan set out 10 actions to reorient capital flows, manage financial risks stemming from climate change, resource depletion, environmental degradation and social issues, and to foster transparency and long-termism. One of the central pillars was to establish an EU classification system for sustainable activities, i.e. an EU taxonomy The European Commission followed through on this action in May 2018 with a proposal for a regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy regulation). Meanwhile, the regulation was published in the Official Journal of the EU and entered into force on 12 July 2020. It will apply in two stages: as of 1st January 2022 for the first 2 environmental objectives (climate change mitigation and adaptation) and as of 1st January 2023 for the 4 other environmental objectives. The Taxonomy Regulation sets out four requirements for economic activities to comply with in order to qualify as environmentally sustainable, for the purpose of establishing the degree of environmental sustainability of an investment (art. 3). Economic activity should:

  • Contribute substantially to one or more of the environmental objectives;
  • Not cause significant harm to any of the environmental objectives;
  • Must be carried out in compliance with minimum safeguards (such as adherence to international social and business standards and conventions);
  • Must comply with technical screening criteria.​

Under art. 5 of the Regulation, environmental objectives are:

  • climate change mitigation;
  • climate change adaptation;
  • sustainable use and protection of water and marine resources;
  • transition to a circular economy;
  • pollution prevention and control;
  • protection and restoration of biodiversity and ecosystems

Moreover, the Regulation introduces disclosure requirements for financial market participants, i.e. institutional investors and corporates preparing non-financial statements under the EU Non-Financial Reporting Directive to disclose how and to what extent their underlying investment and company’s activities are associated with environmentally sustainable economic activities as defined in the Regulation. The regulation also includes a clause allowing the Commission to consider extending the Taxonomy to harmful activities (so-called “brown taxonomy”). ​

The Taxonomy Regulation tasks the Commission with establishing the actual list of environmentally sustainable activities by defining technical screening criteria for each environmental objective. These criteria will be established through delegated acts. The taxonomy for climate change mitigation and climate change adaptation should be established by the end of 2020, in order to ensure its full application by end of 2021. For the four other environmental objectives, the taxonomy should be established by the end of 2021 and will apply by the end of 2022. The first company reports and investor disclosures using the EU Taxonomy are due at the start of 2022.


Disclosures and reporting in the context of sustainable finance

We call the EU to build or support, based on existing solutions, a centralised electronic European ESG data register. We understand that a common European Green Deal dataspace to support the Green Deal priorities is already envisaged in the EU data strategy.

As a first building block, the European data register should focus on ESG disclosure in line with the Non-Financial Reporting Directive (NFRD), EU taxonomy-based information, starting with climate change adaptation and mitigation objectives, as well as ESG data necessary to financial market participants to comply with the SFDR. As another building block the register should include relevant ESG information already collected by European and national institutions such as governments, central banks, statistical bodies, etc. The EU should open up its databases that collect environmental reporting data and make those re-usable. This data is critical for financing, and to track the economic performance of sustainable activities. Such data should be gathered and made available digitally to users of non-financial information – not only investors, but also lenders, academia, researchers, authorities and others. To facilitate the collection, a certain level of standardisation would be necessary. Finally, data should be provided to users ideally free of charge.

Sustainability regulation must establish uniform and clear standards throughout Europe and prevent greenwashing. For that reason we request the Commission not to adhere to the timetable of the SFRD. A full postponement of the implementation date of the SFDR to 1 January 2022 would facilitate financial market participants’ and financial advisors’ compliance with the new disclosure requirements. This moderate extension would give market participants more time for practical implementation (assuming publication of the draft RTS by end January 2021). It would also help not to impede the distribution of sustainable financial products.

In addition, ESG disclosures under SFDR still need to be complemented by Taxonomy related information which will require further adaptations of the RTS, to be effective as from 1 January 2022. The suggested extension for the application of SFDR would therefore have the additional advantage of allowing the coordinated implementation of all ESG-related disclosure requirements for sustainable products with lower implementation costs in the interest of the end-investors.

ESBG acknowledges the benefits that an improved non-financial reporting can have in order to improve the competitiveness of the company, CEO engagement in ESG matters, accountability; the integration of externalities risk assessments, financial assessments, as well as to mitigate negative impacts on the climate while building trust with stakeholders. While supportive of the implementation of the recommendations of the TCFD, savings and retail banks nonetheless draw attention to the issue of data availability in relation to the proposed indicators. For these reasons, non-financial reporting should remain reliable and as flexible as possible, and companies should be able to choose the reporting strategy and guidelines that fits better their strategies and position, considering information related to the four main topics and the principle of materiality.

Identified Concerns

The recent regulatory developments in the context of the EU Sustainable Finance agenda create an urgent need for publicly available ESG data as well as how to enhance their sourcing. Compliance with the new disclosure obligations introduced by the SFDR requires financial market participants to have access to comparable robust and reliable ESG data at the level of companies. From the perspective of the EU Taxonomy Regulation, companies subject to the NFRD will have to disclose how and to what extent their activities qualify as environmentally sustainable as defined in the Regulation. Unfortunately, the availability of comparable, reliable and public ESG data of good quality is currently insufficient to comply with the increasing expectations and new regulatory requirements due to apply shortly. When available, data is often difficult to compare and raises reliability questions. Moreover, ESG data by third party providers is often expensive in particular for small-size financial market players, researchers or academia. With an increasing demand for ESG information, the fragmentation in ESG third party data providers risks leading to insufficient availability of comparable and reliable ESG data as well as to unnecessary costs and competition concerns.​

Corporate reporting has to change – it is not broken; but it will be unless it changes. It has gotten better at showing what is valuable for companies. There is a confusion between what should be and how to change. Reporting is important for better business, better society, better information, better transparency and better capital markets.

Also, financial market participants and financial advisors face huge challenges in ensuring compliance with SFDR by 10 March 2021:

They must include templates for sustainability information in their distribution documents by the time the regulation comes into force on March 10, 2021. The requirements will be developed by the ESAs and will not be available before the end of January 2021. This leaves just five weeks to adapt the investor information.

We therefore echo the concerns highlighted by the ESAs in this regard that financial market participants need more time to properly implement the provisions in the RTS. This situation poses operational challenges in order to be able to update systems and documentation in time.

Furthermore, the timetables and regulatory content between the SFDR and the various sustainable finance work-streams have also been misaligned. These include the Taxonomy Regulation, NFRD, and also the MiFID II RTS on ESG factors and preferences, the latter of which has also been published for feedback quite late Previously discussed issues still persist such as the lack of an ESG data register, and the legal risk for ESG products arising from unclear and inconsistent data indicators, methodologies, definitions etc. ​​

Why Policymakers Should Act

While ESG products are becoming more popular in Europe, justifying common harmonised product disclosure rules, the area of principal adverse impact reporting is relatively new. Data constraint is one of the biggest challenges when it comes to sustainability-related information to end-investors, especially in the case of principal adverse impacts of investment decisions.

Harmonised EU rules on sustainability-related disclosures to end-investors is fundamental to achieve the objectives of the SFDR, i.e. to enhance data availability and comparability and foster sustainable investments while avoiding the risk of greenwashing. Otherwise, in the absence of harmonised EU rules on sustainability-related disclosures to end-investors, it is likely that diverging measures in some EU member states will have the effect that investors are provided with information only in a piecemeal fashion. Such divergent approaches would continue to cause significant distortions of competition resulting from significant differences in disclosure standards. Divergent disclosure standards make it very difficult to compare between different financial products and create an uneven playing field between these products and between distribution channels, and erect additional barriers to the internal market. Such divergences can also be confusing for end-investors and can distort their investment decisions.

Apart from that, the availability of raw harmonized ESG data would allow for better comparability, increase transparency, lower barriers and costs, generate efficiency, reduce complexity and attract new players. Robust, comparable and reliable ESG data is key to identify and assess sustainability risks in lending activities. In addition, availability of ESG data is also necessary to enable financial institutions and investors to steer their portfolios towards the objectives of the Paris Agreement and of the European Green Deal much more efficiently and on a much broader scale.

EU institutions have identified the need to become active. In particular, it is being assessed to which extent the non-financial reporting framework is still fit for purpose and for new challenges (sustainability, assurance and digitalisation).

The principle of proportionality is crucial in this respect. Policy-makers need to bear it in mind when designing legislation and reporting and disclosure requirements for both financial institutions and corporates, including SMEs.​


Following the adoption of the 2015 Paris Agreement on climate change and the United Nations 2030 Agenda for Sustainable Development, the Commission has expressed in the 2018 Action Plan “Financing Sustainable Growth” its intention to increase transparency in the field of sustainability risks and sustainable investment opportunities.​

Given the challenging situation in terms of global warming, urgent action is needed and financial market participants and financial advisers are expected to disclose specific information on their approaches to the integration of sustainability risks and the consideration of adverse sustainability impacts.

In December 2019, the EU Disclosure Regulation entered into force and will be applicable as of 10 March 2021. The Regulation will apply to financial market participants and financial advisers (e.g. insurance intermediaries; credit institutions, investment firms, AIFMs and UCITS management companies which provide investment advice as defined in MiFID II Directive). Also, the Regulation introduces a range of other new definitions, including for concepts such as sustainable investments, sustainability risks and adverse impacts on sustainability factors.

EBA, EIOPA and ESMA (Joint Committee) are tasked with drafting Regulatory Technical Standards (RTS) on:

pre-contractual disclosures to specify the details of the presentation and content of the information disclosed;
the content, methodologies and presentation of information published in financial markets participants’ websites;
the content and presentation of information disclosed in periodical reports; ​

and Implementing Technical Standards (ITS) to determine the standard presentation of information on the promotion of environmental or social characteristics and sustainable investments.