Asset managers, pension funds, insurers or investment advisors in the European Union (EU) will be obliged to report how they assess the environmental and social sustainability of their products. And when they claim to have a green strategy, to justify it.
This is required by the regulation on sustainability disclosure in financial services that came into force on Wednesday and seeks to prevent so-called “greenwashing”, whereby investments not actually climate-friendly are labeled as “green”.
The regulation harmonises the way in which institutional investors, such as asset managers or insurers, must account for how they incorporate sustainability considerations into their activities.
In particular, it requires them to report on the procedures they use to integrate environmental and social risks into their investment and advisory process and how these risks may affect investment performance.
Also, when these companies claim to implement a green strategy, they will have to provide information on how they carry it out and on the sustainability or climate impacts of their products or investment portfolios.
“This increased transparency will raise awareness of the sustainability credentials of financial products. While there is growing recognition of the importance of sustainability and of knowing the risks and opportunities linked to climate, the information provided to investors in the financial sector has so far been limited,” the European Commission said in a statement.
In addition to avoiding “greenwashing”, the EU hopes with this regulation to boost sustainable investments. It estimates that to achieve the climate targets it has set for 2030 would require an additional 260 billion euros per year in investments of this type.
As part of the new European Green Pact, the European Commission has also proposed an investment plan with which it expects to mobilise 1 trillion euros in sustainable investments over the next decade to move towards a carbon neutral economy.
The regulation that came into force yesterday is part of the EU’s sustainable finance action plan, which has also approved a taxonomy to help identify truly green investments. In additiion, it is working on other measures such as the creation of a label of “European green bond” or stock market indices that take into account the carbon footprint of investments.