2023: A key year for environmental, social and governance Iria Calviño, Partner and head of Public Law, Environmental and regulatory practice department at Herbert Smith Freehills. Mónica de Hevia, Associate in energy, infrastructure and public law department at Herbert Smith Freehills. A s we move into 2023, it is essential that we gain an understanding of the various European ESG regulations currently applicable not only to funds and asset managers, but to all players in the European market. Despite the abrupt change in financial landscape over the past year and an increasingly difficult macroeconomic climate, ESG investing is actually set to grow. In fact, global ESG investments could reach $50 billion by 2025, representing one-third of total planned investments under management worldwide, a significant increase from $35 billion in ESG investments in 20201. Despite being faced with one of the most complex macroeconomic environments in the last 50 years, the European Central Bank (ECB) recently declared its intention to turn the fight against climate change into “real action”. This action includes tilting corporate bonds towards issuers with better environmental scores and adapting monetary policy to account for climate change2. Thus, following the unprecedented heat waves, droughts and floods in Europe, forest fires in the USA and the devastating floods in Pakistan in 2022, climate change objectives and the concern for the climate have come to the forefront. In providing a brief summary of the latest ESG developments in Europe, we cannot overlook the two main Regulations enacted in this regard: Regulation (EU) 2019/2088 (“Taxonomy Regulation”), and Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (“Disclosure Regulation”). Both Regulations, although passed several years ago, have regained prominence – if they ever lost it – due to the mandatory application as from 1 January 2023 of certain obligations contained therein to financial market participants. To clarify the obligations contained in the aforementioned regulations and also shed some light on several of the concepts laid out in said regulations, a Delegated Regulation laying out Regulatory Technical Standards (“RTS”) was published in July 2022. This Delegated Regulation elaborates on the obligations set forth in the Disclosure Regulation and establishes the content, methodology and form of presentation of the sustainability information required to be disclosed by financial market participants from 1 January 2023. The RTS also provide the charts that financial market participants are required to disclose, specifying to what extent investments in a given product comply with the Taxonomy Regulation.. In the last year there have been several developments that have helped us to better understand the RTS and other components of the Disclosure Regulation. However, although the RTS measures apply as from 1 January 2023, further regulatory revisions are already being proposed and guidance continues to be studied and published, with some key issues yet to be resolved.. In fact, recently, on 5 April 2023, the European Commission published a Decision answering questions raised by the European Supervisory Authorities (“ESAs”) on the interpretation of the Disclosure Regulation, together with amendments to certain answers that the European Commission had previously given on the same topic. As already mentioned, considering this is a new regulation, there are still certain gaps, and as such, guidelines and interpretations have been published by the European Commission, the ESAs and many national EU regulators over the last two years. In doing so, they have also attempted to keep up with the rapidly changing market practices as well as new products and standards. However, in this latest Decision, the European Commission emphasized the open nature of the Disclosure Regulation, leaving room for asset managers to tailor it to their needs rather than setting out specific methodologies and requirements. READ MORE Notes