The financial market assumes a key role in the structural change towards a sustainable and climate-neutral economy. Financial market participants may contribute significantly, both as providers of financial products and as institutional investors, to reducing the impact of climate change and to make the transition to a more sustainable and more resilient economy. By integrating sustainability aspects in relation to Environmental, Social and Governance (ESG) factors into the regulatory and supervisory legal frameworks, capital flows should now accordingly be diverted towards sustainable investments in accordance with the European Commission’s Action Plan on Sustainable Finance and the Green Deal, and measures pushed for overcoming financial risks arising from climate change, natural catastrophes and social problems as well as for promoting transparency and long-term thinking in financial and economic activities.
Based on the European Commission’s Action Plan on Sustainable Finance and the Green Deal, a legal framework on sustainable finance that falls under the FMA’s scope of competence has been established.
Taxonomy Regulation (TR)
As the central legal act in European regulation, Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 defines whether an economic activity is classified as sustainable in order to be able to determine how environmentally sustainable an investment is.
The legal definition of environmentally sustainable economic activities set out in Article 3 in conjunction with Articles 10 to 18 TR is a central concept, under which an environmentally sustainable economic activity is an economic activity that makes a substantial contribution:
- to one or more of the taxatively listed environmental objectives (Article 9 TR), i.e.
- to climate change mitigation (Article 9 point a) TR), or
- to climate change adaptation (Article 9 point b) TR)
or since 01.01.2023 (see Article 27(2) point a TR)
- to the sustainable use and protection of water and marine resources (Article 9 point c) TR),
- to the transition to a circular economy (Article 9 point d) TR),
- to pollution prevention and control (Article 9 point e) TR) or
- to the protection and restoration of biodiversity and ecosystems (Article 9 point f) TR),
that makes a substantial contribution pursuant to Articles 10 to 16 TR (special criteria for each environmental objective) that
- does not lead to significant hard to other environmental objectives (Article 17 TR);
- complies with minimum safeguard standards (Article 18 TR) and
- complies with the technical valuation criteria defined by the European Commission.
Furthermore, the provisions in the Taxonomy Regulation that are particular relevant for financial market participants are those regarding
- Transparency in pre-contractual disclosures and in periodic reports regarding environmentally sustainable investments (Article 5 TR), financial products that promote environmental characteristics (Article 6 TR) and other financial products (Article 7 TR) as well as with regard to
- Transparency of undertakings in non-financial statements (Article 8 TR).
To further specify the obligations set out in the Taxonomy Regulation, the Commission has been granted the power to issue delegated legal acts pursuant to Article 8 (4), Article 10 (3), Article 11 (3), Article 12 (2), Article 13 (2), Article 14 (2( and Article 15 (2) in conjunction with Article 23 TR. In this regard, particular reference is made to the following legal acts:
- Commission Delegated Regulation (EU) 2021/2178 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation (known as the “Disclosure Delegated Act”).
- Commission Delegated Regulation (EU) 2021/2139 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives (known as the “Climate Delegated Act”).
- Commission Delegated Regulation (EU) 2022/1214 amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities (known as the “Complementary Climate Delegated Act”).
The FMA was named as the competent authority for the enforcement of disclosure obligations in accordance with Articles 5 to 7 of the Taxonomy Regulation as part of the amendments to laws published in Federal Law Gazette I No. 36/2022.
Sustainable Finance Disclosure Regulation (SFDR)
Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector sets out harmonised rules for financial market participants and financial advisers on transparency in relation to disclosure about the integration of sustainability risks and consideration of adverse sustainability impacts in their processes and in providing information about the sustainability of financial products. It has applied since 10.03.2021. The following disclosure obligations arise from the SFDR:
- Website disclosure:
- Transparency of sustainability risk policies pursuant to Article 3 SFDR
- Transparency of adverse sustainability impacts at entity level pursuant to Article 4 SFDR
- Transparency of remuneration policies in relation to the integration of sustainability risks pursuant to Article 5 SFDR
- Disclosures in pre-contractual documents:
- Transparency of the integration of sustainability risks pursuant to Article 6 SFDR
- Transparency of adverse sustainability impacts at financial product level pursuant to Article 7 SFDR
The required disclosures in pre-contractual documents vary depending on the specific rules depending pursuant to Article 8 SFDR whether it is a financial product that promotes environmental or social characteristics (“light green” products), or whether it is a financial product that has sustainable investment as an objective (“dark green” products).
- Disclosures in periodic reports.
Regulatory Technical Standards have been published in a delegated Regulation to the SFDR (CDR (EU) 2022/1288) that specify the details regarding the content, methodologies and presentation of sustainability-related information. The delegated Regulation also contains reporting templates for Principal Adverse Impacts (PAI) and reporting in accordance with Articles 8 and 9 as an Annex. They apply since 01.01.2023.
The FMA was named as the competent authority for the enforcement of disclosure obligations in accordance with the Disclosure Regulation as part of the amendments to laws published in Federal Law Gazette I No. 36/2022.
Amendment of the Benchmark Regulation (BR)
Regulation (EU) 2019/2089 amending Regulation (EU) 2016/1011 (The Benchmark Regulation) as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks was published on 09.12.2019. The amendment of the BR includes the adoption of the EU Climate Transition Benchmark (Article 3 (1) point 23a BR) as well as an EU Paris-aligned benchmark (Article 3 (1) point 23b BR) as well as accompanying provisions in this regard. Benchmark administrators which provide an EU Climate Transition Benchmark or an EU Paris-aligned Benchmark have been required to comply with the requirements set out in the BR since 30.04.2020 (Article 19a (3) BR).
Integration of Sustainability Aspects in the legal framework of Solvency II, IDD, MiFID II, AIFMD, UCITS-D
Amendments to delegated legal acts in securities and insurance supervision law (Solvency II, IDD, MiFID II, AIFMD, UCITS-D) were published on 21.04.2021. They relate to taking into account of sustainability preferences in investment/insurance advice as well as sustainability factors in product governance as well as the explicit integration for taking into account sustainability risks in securities and investment supervision law (e.g. organisational requirements, risk management, conflicts of interest). Their respective entry into force varies depending on the respective legal act, but has generally been the case since August 2022.
Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD) was published in the Official Journal of the European Union on 14.12.2022. It substantially modifies the existing provisions on sustainability reporting. First and foremost, the future Article 19a of the Financial Statements Directive as amended by the CSRD broadens its scope. Whereas only large undertakings that were public-interest entities with an average of more than 500 employees were previously required to submit non-financial statements, this requirement will be extended in the future to cover all large entities, irrespective of whether or not they are exchange-listed, as well as exchange-listed small and medium-sized undertakings, although some simplifications are intended for the latter. Micro-undertakings remain excluded from this requirement. Another significant regulatory aspect is the introduction of binding standards for the sustainability reporting in the future Article 29b of the Financial Statements Directive as amended by the CSRD. The CSRD also stipulates that mandatory presentation of the sustainability report in the management report – there is no longer an alternative option for a separate report. Furthermore, the obligation is also introduced to have the sustainability report reviewed by an external source.
The European Financial Reporting Advisory Group (EFRAG) is responsible for the technical drafting of the European Sustainability Reporting Standards (ESRS). Pursuant to Article 7 CSRD, the CSRD shall first apply to financial years that begin on/after 01.01.2024 – however applicability will also occur on a gradual basis depending on the type of undertaking. As the legal act in question is an EU Directive, prior to the CSRD becoming applicable for the first time, Member States will need to issue transposing legal acts under national law (national transposing legislation), which is expected to take place during 2023.
Since 2021, sustainability has been one of the FMA’s dedicated priority for supervision and inspections. In addition to a structured dialogue with all stakeholders on sustainability issues, two specific thematic aspects of the FMA’s priorities have been able to be highlighted: on the one hand the appropriate integration of sustainability risks into strategy, governance and risk management of supervised entities (with a focus on resilience), and on the other hand observance of the necessary disclosures regarding sustainable financial products, in order to reduce risks of greenwashing (with a focus on collection investor protection). Further details about the FMA’s priority for supervision regarding sustainability can be found in the FMA publication “Facts and Figures, Trends and Strategies”, published annually.
FMA Guide for Managing Sustainability Risks
In July 2020, the FMA published a cross-sector FMA Guide for Managing Sustainability Risks. The FMA Guide should generally serve as guidance for supervised entities in the consideration of sustainability risks within the scope of their business activities and in particular should prepare them for regulatory developments.
In 2022, the FMA conducted a cross-sector survey about the extent to which the integration of sustainability risks in strategy, governance and risk management has already been implemented across the Austrian financial market (implementation check). The FMA Guide served as a reference for this check. In addition, challenges relating to sustainability-related disclosure requirements were also evaluated. The survey was also used to identify any potential need to develop the FMA Guide further, directly involving entities supervised by the FMA in the process.
A report (available in German only) on checking the implementation of the FMA Guide for Managing Sustainability Risks in the Austrian financial market was published on 18.01.2023.
FMA Guide for Managing Sustainability Risks – published 02.07.2020
Sustainability as a priority for supervision and inspections in the FMA’s annual publication “Facts and Figures, Trends and Strategies”
UN Climate Summit 2021 – FMA and OeNB support the UN Climate Conference in Glasgow
FMA information about Sustainable Finance in pension funds (Pensionskassen)
FMA information about Sustainable Finance in insurance companies
Information from the European Commission on Sustainable Finance
Sustainable Finance Disclosure Regulation (SFDR)