ESG regulations: a summary of EU and UK regulations impacting asset managers

12 August 2022

The European Commission’s Sustainable Finance Action Plan, and the UK Government’s Roadmap to Greening the Financial System, include a range of legislative measures which impact asset management firms making available financial products within the EU/to EU investors or within the UK/to UK investors.

We have prepared a series of notes and blog posts which explain the impact, scope and requirements of the various measures to asset managers:

EU Sustainable Finance Disclosure Regulation and Taxonomy Regulation;
ESG amendments to the UCITS, AIFMD and MiFID rules;
UK Sustainability Disclosure Requirements and Investment Labels; and
UK climate-related financial disclosure rules.

Overview of the various measures

The Sustainable Finance Disclosure Regulation (SFDR) imposes sustainability-related disclosure obligations on financial services firms and financial products that have an EU-nexus.

The Taxonomy Regulation supplements and amends SFDR and: (i) establishes a taxonomy, or glossary, for assessing whether certain economic activities are considered “environmentally sustainable” in accordance with one or more of six prescribed environmental objectives; and (ii) introduces additional disclosure obligations for products in scope of SFDR. In time, the intention is to extend the taxonomy beyond purely environmentally sustainable objectives to include social objectives.

See our blog post for our thoughts on the applicability of SFDR to UK firms. See also a simple guide to the EC’s clarifications of the SFDR and a Q&A on the implementation of SFDR.

A series of amendments to the existing AIFMD, UCITS and MiFID frameworks, which aim to integrate sustainability considerations into firms’ day-to-day operations. The measures form part of the EU’s sustainable finance action plan.

The Sustainability Disclosure Requirements (SDR) and investment labels form part of the UK Government’s Green Finance Roadmap. The SDR introduces a package of measures applicable to FCA authorised firms, to help investors navigate the market for sustainable investment products in the UK, including disclosure requirements (at entity and product level), naming and marketing rules, distributor requirements, and sustainable investment labels which may be used for products meeting the relevant qualifying criteria. The SDR also includes an anti-greenwashing rule which will require all FCA authorised firms to ensure that any reference to the sustainability characteristics of a product or service communicated in the UK is both (i) consistent with the sustainability characteristics of the product or service, and (ii) fair, clear and not misleading.

The SDR builds on existing requirements and expectations for UK firms, notably the FCA’s Guiding Principles for ESG/sustainable investment funds.

This note summarises the rules set out in the SDR as applied to different types of FCA authorised firms.

From April 2022, the UK became the first jurisdiction to mandate company reporting aligned with the Taskforce for Climate-related Financial Disclosures’ (TCFD) recommendations. The TCFD was formed by the global Financial Standards Board to set a framework for, and encourage the uptake of, reporting relating to climate change. The TCFD provides a means by which companies can measure their carbon footprint and provide qualitative information about how they do and will address climate change related risks and opportunities.

The UK has rolled out TCFD-aligned reporting to issuing companies and financial institutions of different types and size on a staggered basis. The drafted rules for asset managers are the subject of this note.

Overview of the various measures

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