After a 'trilogue' on Wednesday, 6 March which lasted until the early morning, representatives of the European Parliament and the Romanian Presidency of the Council of the EU reached a political agreement on the proposed regulation, which specifies how institutional investors should integrate environmental, social and governance (ESG) factors into their investment decision-making (see EUROPE 11977/2).
“It is also the responsibility of the financial sector to invest in solar panels, green energy and a just society. Banks, insurance companies and pension funds will have to disclose how they include environmental, social and governance risks in their decision-making process”, said rapporteur Paul Tang (S&D, Netherlands) in a statement.
The Council of the EU had adopted a relatively minimalist approach (see EUROPE 12162/12) compared to that of the European Parliament, explained a European source. And it was finally the Parliament that won the case on the scope, since the regulation will apply to all financial products (see EUROPE 12131/3).
The agreement also maintains the principle of "due diligence” in a broad sense, defended by the rapporteur, who asks financial institutions not only to identify negative impacts on sustainability, but also to have a policy to avoid or mitigate these impacts.
As far as disclosure of information is concerned, the agreement follows the two-tier logic of the company and the product, and added a ‘comply or explain’ mechanism - a concession that the Parliament had to make.
According to this mechanism, financial market participants should publish a statement on their due diligence principles and a list of information. But if they decide not to take into account the negative effects of investment decisions on sustainability factors, they may then decide not to disclose this information, but will have to explain why they do not do so and when they intend to do so. A clause has also been added to ensure that large financial institutions would be required to disclose certain information.
The new rules should in practice limit the potential for “greenwashing”, i.e. the risk that products and services that are marketed as sustainable or climate-friendly do not actually meet the sustainability objectives they claim to pursue.
The agreement has yet to be validated by both institutions. (Original version in French by Marion Fontana)