New European rules on sustainability disclosure requirements in the financial services sector take effect in March, affecting institutions such as banks, insurance companies, pension funds, and investment firms.

And while details of the Sustainable Finance Disclosure Regulation (SFDR) have not been finalized, law firm Akin Gump says the move to increase requirements shows the EU and the UK have “ambitious plans” for improving environmental, social, and governance (ESG) disclosures for financial firms. In 2018, the European Commission established an action plan on financing sustainable growth.

And “Action 7” of the plan, which takes effect March 10, calls for clarifying institutional investors’ and asset managers’ ESG disclosure duties. It sets sustainability disclosure obligations for manufacturers of financial products and financial advisers in relation to the integration of sustainability risks by participants such as asset managers, pension funds, and other institutional investors.

According to Akin Gump, the three main disclosure requirements specified by the European Commission are: 1. Disclosures related to the integration of sustainability risks in the investment decisionmaking process; 2. The pre-contractual disclosure requirements applicable when products are promoted as having an ESG focus or investment objective; and 3. The disclosures related to whether an investment manager or financial product considers the adverse impacts of investment decisions on sustainability.

The UK will also introduce new ESG disclosure requirements for Financial Conduct Authority (FCA)-authorized investment managers based on the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD). The UK’s Joint Government-Regulator TCFD Taskforce has said the UK’s proposed rules will likely include disclosure of strategy, policies, and processes.

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