Taxonomy Extension: ESG4Insurance Level 1 Documents

The Taxonomy Regulation  (EU 2020/852) was adopted in June 2020, and went into effect on 1 June 2022. The Taxonomy Regulation establishes a classification system to identify whether an economic activity can be considered “environmentally sustainable.”  Thus, the Taxonomy Regulation is also a supplement to the Disclosure Regulation (EU 2019/2088). It is necessary that, per Articles 8 and 9, financial products disclose further information relating to environmentally sustainable investments.

In addition to this, articles 5, 6, and 7 of the Taxonomy Regulation define that products that qualify as Articles 8 and 9 of the Disclosure Regulation must be disclosed. These requirements help place the focus on ecologically sustainable investments.

This past November, the ESAs and the European Commission (EC) stated, in a meeting with EFAMA, that they do not agree with a disclaimer approach to the taxonomy-related disclosures of the Level 1 requirements under Articles 5 & 6 of the Taxonomy Regulation. Instead, the European Commission and the ESAs favor disclosing a 0% taxonomy target. The EC reiterated that the taxonomy is only a voluntary marketing tool and that taxonomy alignment should only be disclosed if it is also based on data.

The European ESG Template (EET) is a data format that summarizes relevant ESG data on individual financial products. The plan is for financial manufacturers to partially fill this template, around May 2022, and communicate the sustainability preferences of the IDD, MIFID II Regulation (in effect starting 02.08.2022). The various associations are also trying to postpone the entry into force of the sustainability preferences of the IDD / MIFID II Regulation in order to harmonize it with the entry into force of the Disclosure Regulation. Whether this will succeed, however, is still open. The current planning envisages that the complete EET will be filled from Q4, 2022.

Temporarily, until the EET is in circulation, we will expand our own Level I format at cleversoft, and ask the asset managers for the following information, which will be available in the Standard Level I document in the course of Q1 2022:

• To which environmental objectives does the financial instrument contribute?
• Which economic activities can be classified as environmentally sustainable? What share of investments do they cover?
• Which economic activities are enabling and which are transitional? What proportion of environmentally sustainable investments are enabling activities and what proportion of these are transitional activities?

As an active member of the European FinDatEx Group, our cleversoft team participates in the development of the European ESG Template (EET). We plan to update the ESG Level I document to provide further information, published by the capital management companies in the EET. An example would be a link to the manufacturer’s pre-contractual ESG information under the Disclosure Regulation. This information is expected to become available, starting January 2023 and we will inform you promptly when exactly the documents will be expanded.