On 13 May 2019, the European Securities and Markets Authority (ESMA) published the keynote speech that Evert van Walsum (Head of Investors and Issuers Department, ESMA) gave at the Swedish Fund Association’s Annual Conference.

In his speech Mr van Walsum covers sustainable finance, costs and fees borne by investors buying funds and investor protection more generally, with a focus on disclosure-related issues.

In relation to sustainable finance Mr van Walsum notes that:

  • EU co-legislators are agreed on two of the three European Commission legislative proposals. The agreed legislative proposals are: (i) disclosure requirements on how institutional investors integrate environmental, social and governance factors in their risk processes; and (ii) a new category of benchmarks intended to help investors compare the carbon footprint of their investments);
  • the three European Supervisory Authorities (ESAs) are now starting work on the mandated technical standards on disclosure;
  • ESMA is providing technical advice which will supplement the legislative proposals by amending delegated acts under the UCITS Directive, the Alternative Investment Fund Managers Directive (AIFMD) and the Markets in Financial Instruments Directive (revised) (MiFID II). ESMA has recently submitted technical advice on integrating sustainability risks and factors in the above Directives; and
  • ESMA’s advice on changes to the UCITS Directive and AIFMD Level 2 legislation relates to organisational requirements, operating conditions and risk management. On organisational requirements, ESMA recommends that the Commission amends relevant requirements to ensure that all UCITS management companies and alternative investment fund managers (AIFMs) take into account sustainability risks in their processes, systems and controls, devote sufficient resources to the integration of sustainability risks and ensure that senior management is responsible for the integration of sustainability risks. In terms of operating conditions, ESMA’s advice recommends changes to the legislative texts to ensure that fund managers take into account sustainability risks in their due diligence processes and consider conflicts of interests that may arise in relation to the integration of sustainability risk. On risk management, ESMA has recommended to the Commission to include sustainability risks in the list of material risks to be managed by UCITS management companies and AIFMs.

In terms of the agreed legislative proposal on disclosures, Mr the van Walsum states that the ESAs are empowered to draft a significant number of draft technical standards, most of which will be produced during or just after the summer. These include:

  • public disclosure of so-called ‘principal adverse impacts’ of investment decisions on sustainability factors, such as environmental and social matters;
  • pre-contractual disclosures showing how products meet environmental or social characteristics or sustainable investment objectives;
  • periodic reporting requirements on how financial products meet their environmental or social characteristics and the overall sustainability-related impact of products with sustainable investment objectives; and
  • the standard presentation of the promotion of environmental or social characteristics and sustainable investments in marketing communications.