The Network for Greening the Financial System has updated its guide on climate-related disclosure for central banks. The guide calls on central banks to disclose their climate-related risks and opportunities. The updated guide is organized around the four thematic areas identified by the Task Force on Climate-Related Financial Disclosures—governance, strategy, risk management, and metrics and targets. It builds on and aims to complement the original TCFD recommendations, providing additional guidance for central banks. The updates include: (i) a new chapter on metrics and targets benefits from the NGFS' work on sustainable and responsible investment; (ii) additional support on the disclosure of internal operations, building on work conducted by the NGFS subgroup on greening central banks' corporate operations; and (iii) new sections on the disclosure on institutional functions, i.e. monetary policy, supervision, financial stability. Looking ahead, the NGFS will build upon the guide to further strengthen its role as a forum for central banks to share their practical experiences and support one another in enhancing their climate-related measures.

Commission Delegated Regulation (EU) 2024/1700 has been published in the Official Journal of the European Union, supplementing the EU Securitization Regulation with regard to RTS specifying, for simple, transparent, and standardized non-asset backed commercial papers traditional securitization, and for STS on-balance-sheet securitization, the content, methodologies, and presentation of information related to the principal adverse impacts of the assets financed by the underlying exposures on sustainability factors, was published in the Official Journal of the European Union. The Capital Markets Recovery Package amended the Securitization Regulation to provide originators of STS securitizations with the option to disclose available information related to the principal adverse impacts on sustainability factors of the assets financed by residential loans, auto loans, or leases. The Delegated Regulation aims to standardize the type and presentation of information an originator may opt to disclose about the adverse impacts of assets financed by underlying exposures, on the environment, and other sustainability factors. The Delegated Regulation also seeks to ensure as much consistency as possible with the European Supervisory Authorities' work in respect of sustainability-related disclosures in financial services under the EU Sustainable Finance Disclosure Regulation. The Delegated Regulation will enter into force on July 9, 2024, 20 days following its publication in the Official Journal of the European Union.

The European Supervisory Authorities have published a joint opinion assessing the EU Sustainable Finance Disclosure Regulation. The opinion proposes simplification of product categories under the existing regulation, following confusion among retail investors about SFDR templates and the labelling of products as "Article 8" or "Article 9" as a method of quality assurance, leading to greenwashing risks. It is argued that disclosures should be jargon free, empowering investors to understand the underlying sustainability profile of financial products. The ESAs recommend the introduction of a product classification system based on regulatory categories or sustainability indicators. The ESAs suggest two product categories, "sustainable" and "transition". The need for an unambiguous definition of "sustainability" that differentiates between "environmentally" and "socially" sustainable categories is noted. The ESAs strongly recommend the European Commission ensures that sustainability disclosures cater to different investor needs and that the Commission implement a sustainability indicator that grades financial products, indicating whether it is environmentally sustainable, socially sustainable, or both.

The European Supervisory Authorities have published their final reports on greenwashing in the financial sector. Each ESA provides a stocktake of the current supervisory response to greenwashing risks under its remit and notes that national competent authorities are already taking steps in the area of supervision of sustainability-related claims. The quantitative analysis of greenwashing in the EU shows a clear increase in the total number of potential cases across all sectors.

Each report provides recommendations for market participants, NCAs, the ESAs and the EC in relation to greenwashing. The recommendations include that market participants: (i) take all necessary steps to ensure that sustainability information provided is fair, clear, and not misleading; (ii) review and adapt their governance arrangements and internal processes to build safeguards against greenwashing, take a proactive approach in addressing data challenges, and consider the extent to which external verification and alignment with market guidance would support credibility of green or sustainable products and/or targets; and (iii) take a series of measures at both the entity level and the product level to ensure that sustainability claims are accurate, substantiated, up to date, that they fairly represent the institution’s overall profile or the profile of the product, and are presented in an understandable manner.

While the ESAs’ reports focus on the EU’s financial sector, they acknowledge that addressing greenwashing requires a global response, involving close cooperation among financial supervisors and the development of interoperable standards for sustainability disclosures. Building on the preliminary regulatory remediation actions identified in ESMA’s June 2023 progress report, ESMA will publish an opinion with views on how the EU regulatory framework for sustainable finance could further facilitate the investor’s journey.

On April 23, 2024, the U.K. Financial Conduct Authority published guidance on its anti-greenwashing rule, which was introduced into the FCA Handbook's Environmental, Social and Governance Sourcebook as part of the FCA's sustainability disclosure and labeling regime in November 2023. The rule requires authorized firms to ensure that references to the sustainability characteristics of products or services which they market to those in the U.K. are fair, clear and not misleading and are consistent with the sustainability characteristics of the product or service in question. The rule is intended to complement and be consistent with existing fair, clear and not misleading requirements found elsewhere in the FCA's rules (e.g., the Principles for Business and Conduct of Business Sourcebook).

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The U.K. Financial Conduct Authority published a consultation paper on April 23, 2024 on the possibility of extending the Sustainability Disclosure Requirements and labeling regime to portfolio management firms. Responses to the consultation should be submitted by June 14, 2024.

The SDR regime was introduced in November 2023, applying a new anti-greenwashing rule to all FCA-authorized firms and a range of disclosure, labeling and naming/marketing requirements to U.K. asset managers.

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The U.K. Emissions Trading Scheme Authority has launched a consultation on its approach to free allocations. The ETS is proposing options to amend the free allocation methodology, focusing on its approach to accounting for activity levels, benchmarking and the manner in which carbon leakage risk is assessed. Carbon leakage occurs when production and associated emissions are transferred from one country to another by a business in order to benefit from lower carbon pricing and climate regulation in other jurisdictions. The free allocation policy is intended to reduce a firm's exposure to the carbon price in the U.K.

Responses to this consultation may be submitted until March 11, 2024. A government response is expected to be published in 2024, with changes implemented in the lead up to the next free allocation period in 2026. The ETS Authority is also consulting on changes to the U.K. ETS markets policy.

The U.K. Emissions Trading Scheme Authority has launched a second consultation on the review of the ETS markets policy. Feedback to the first consultation has been taken into account to prepare the proposals discussed in this second consultation. Responses to this second consultation may be submitted until March 11, 2024. The ETS Authority is also consulting on changes to the U.K. ETS free allocation framework.

The ETS Authority identifies the most significant risks to effective market functioning and proposes various policy options to address those risks as well as how individual market stability policies could address market risks while minimizing intervention and disruption in the market. The ETS Authority is proposing to: (i) introduce a quantity-triggered Supply Adjustment Mechanism to mitigate the risk of demand shift with long-term market impacts; (ii) retain a re-designed Auction Reserve Price, as well as possible additional mechanisms, to alleviate the risk of sudden, significant and sustained price decreases; and (iii) retain the Cost Containment Mechanism to mitigate against sudden, significant and sustained price increases, including whether to maintain the use of discretion to act upon the trigger or whether some automation could be introduced.

The U.K. Financial Conduct Authority published on November 28, 2023 its final policy statement on its new sustainability disclosure requirements and investment labels. The regime is intended to improve the integrity of the market and enhance consumer protection. It forms part of the U.K.'s broader strategy for enhancing protections around sustainability-related products and services, which includes guiding principles for sustainable investment funds, a Roadmap to Sustainable Investing and the 2023 Green Finance Strategy. The new rules enter into force on a staggered basis, as described below.

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The Basel Committee on Banking Supervision published a press release in early October in which it announced:

• That it would consult on disclosure frameworks for climate-related financial risks (in November 2023) and banks' cryptoasset exposures (soon).
• The publication of its report on the banking turmoil of 2023, which assesses the causes of the turmoil, the regulatory and supervisory responses, and the initial lessons learnt. The Basel Committee states that it will be undertaking some follow-up work, including prioritizing work to bolster supervisory effectiveness globally and assessing whether any aspects of the Basel Framework did not function as intended during the turmoil.
• That by mid-2024 it would publish a report on developments in the digitalisation of finance and their implications for banks and supervisors.

The EU published a new Sustainable finance package 2023 on June 13, 2023. The package includes:

• A Proposed Regulation on the transparency and integrity of ESG rating activities, which aims to enhance the quality of ESG ratings. The Regulation will introduce an authorization and ongoing supervision regime for ESG rating providers along with certain obligations, e.g., disclosures on ratings methodologies. The proposal does not intend to harmonize the methodologies for the calculation of ESG ratings, but to increase their transparency. Third-country ESG rating providers may be able to offer their services in the EU under either equivalence, endorsement or recognition. The U.K. is currently consulting on making the provision of ESG ratings a regulated activity.

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As part of its new Green Finance Strategy, HM Treasury has published a consultation paper on proposals to regulate providers of environmental, social and governance ratings. Such ratings providers offer assessments on a firm’s exposure to ESG risks or a firm’s impact on ESG matters. HM Treasury has found that these assessments increasingly trigger responses in financial markets and should therefore be subject to regulation. Responses to the consultation should be submitted by June 30, 2023.

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The U.K. Government has published the 2023 Green Finance Strategy, its latest plan for mobilizing finance to support the shift to a greener financial system. The U.K. has committed to becoming a net zero economy by 2050.

The action points in the Strategy are based on two pillars: ‘Align’, which focuses on aligning financial markets with U.K. and global climate targets; and ‘Invest’, which encourages green investment. The proposals will have significant implications for corporates, financial institutions and investment firms, asset managers and financial market infrastructure providers. 

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The final report of the independent review of net zero has been published: "Mission Zero: Independent Review of Net Zero".  The review was established in September 2022 to assess the government's approach to achieving its target of net zero greenhouse gas emissions by 2050. The government published its Net Zero Strategy in October 2021. The review's report makes numerous recommendations across a variety of sectors. Below are those most relevant to the financial services sector.

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The U.K. Government has announced on a series of initiatives, billed as the Edinburgh Reforms, to reform the laws for the U.K. financial services sector. The proposals cover:

• Reforms to Ring-Fencing Regime;
• Implementation of Post-Brexit Financial Regulatory Framework;
• Growth and Competitiveness Remit for U.K. Regulators;
• Reforms to Wholesale Markets;
• Faster Settlement;
• Senior Manager's and Certification Regime;
• Changes to Promote Investment and Growth in Financial Services;
• Sustainable Finance;
• FinTech and Digital Assets; and
• Consumer Credit.

We discuss these reforms in detail and what they might mean for the direction of travel for financial services regulation in the U.K. in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services".

The International Organization of Securities Commissions has published a consultation on Compliance Carbon Markets and a separate discussion paper on voluntary carbon markets. Compliance Carbon Markets involve the issuance of carbon allowances by regional, national or state bodies. Companies are obligated to participate in the schemes to "pay" for their emissions. These markets are governed by regulations set at regional, state and international levels. The U.K., EU, Switzerland and California, for example, each have national Emissions Trading Schemes (as do some other countries or states). VCMs, on the other hand, involve participants who wish to offset their carbon emissions by buying carbon credits issued in relation to climate change mitigation or greenhouse gas reduction projects. VCMs are largely unregulated and, unlike Compliance Carbon Markets, are not mandatory. Instead, independent certification bodies usually check projects underlying credits for carbon reduction projects. Those credits can then be traded, either over-the-counter (which accounts for the majority of trades) or on exchanges.

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Following its 2021 Discussion Paper, the FCA has published a consultation paper setting out proposals to enhance sustainability disclosure and labeling requirements for sustainability-linked investment products. The majority of the rules will apply only to fund and asset managers, although the FCA is considering expanding this to FCA-regulated asset owners in relation to their investment products and for certain rules to apply to distributors of investment products to U.K. retail investors. The proposals are directed at fund and asset managers and portfolio managers based in the U.K. The FCA will consult separately on how these proposals apply to overseas fund and asset managers. The FCA already has climate-related disclosure rules for premium listed issuers, as well as rules for standard listed issuers and certain FCA-regulated firms (asset managers, life insurers, pure reinsurers and FCA-regulated pension providers).

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The European Commission has published a call for advice addressed to the European Supervisory Authorities on the monitoring and supervision of "greenwashing" across the EU. Greenwashing can broadly be understood as the misleading marketing of a company or product as being environmentally friendly or sustainable, when that is not (or not substantially) the case. The EU has introduced legislation to preserve the reliability and transparency of ESG disclosures, including the Taxonomy Regulation and Sustainable Finance Disclosure Regulation. However, the Commission considers it important to continue monitoring greenwashing risks and assess the effectiveness of supervisory activities.

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The U.K. Government has published the U.K. Infrastructure Bill, a piece of legislation designed to put the U.K. Infrastructure Bank on a statutory footing. The Bank was launched in interim form in June 2021 as part of the Chancellor of the Exchequer's plan to "level up" the U.K. and help achieve the U.K.'s target of net zero emissions by 2050. It will operate in partnership with private and public sector institutions to invest in projects which promote regional growth across the U.K. and support efforts to tackle climate change. The bank will have £22bn of financial capacity (via a mixture of equity and debt capital and the ability to issue guarantees) and it is hoped that its investments will help to generate over £40bn of overall investment for its projects.

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The European Banking Authority, European Insurance and Occupational Pensions Authority and European Securities and Markets Authority have published a consultation on draft Regulatory Technical Standards for disclosures on sustainability indicators in simple, transparent and standardized securitizations. Responses to the consultation should be submitted by July 2, 2022.

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The European Banking Authority has published a discussion paper on whether, and how, environmental risks should be incorporated into the EU prudential frameworks for EU credit institutions and investment firms. The feedback received will help the EBA to determine (in accordance with its mandates under the EU Capital Requirements Regulation and EU Investment Firm Regulation) whether the EU should introduce specific prudential treatment for certain exposures and assets that are substantially linked to environmental and/or social objectives and impacts. Responses should be submitted by August 2, 2022.

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The European Securities and Markets Authority has published a Call for Evidence on climate risk stress testing for EU central counterparties. Responses should be submitted by April 21, 2022.

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The European Commission has published a proposed Directive on Corporate Sustainability Due Diligence. The proposed Directive is designed to encourage the conduct of due diligence by major companies (including regulated financial institutions) on their value chains to identify risks linked to human rights or environmental impacts. This in turn is intended to support the objectives of the European Green Deal and assist in the transition to a climate-neutral and green economy.

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The Financial Stability Board has published a letter to G20 Finance Ministers and Central Bank Governors outlining its work priorities for 2022, which are:
 

• Supporting financial market adjustment to a post-COVID-19 world: the FSB observes vulnerabilities in the financial system, such as embedded leverage in some parts of the system and rising real estate and other asset valuations, which could pose risks to stability in the event of tightening financial conditions. Uneven unwinding of pandemic support measures is also a risk and the FSB will prepare an interim report in July and final report in October on policy considerations to support a more even global pandemic recovery.

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The European Securities and Markets Authority has published its Sustainable Finance Roadmap for 2022-2024. The Roadmap sets out ESMA's priorities for sustainable finance over the next two years, which include: (i) tackling greenwashing and promoting transparency; (ii) building the capacity of national regulators and ESMA to understand and address the supervisory implications of new legislation and market practices; and (iii) monitoring emerging trends in environmental, social and governance markets and related risks and vulnerabilities.

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The European Banking Authority has published final draft Implementing Technical Standards on Pillar 3 prudential disclosures of environmental, social and governance risks under the EU Capital Requirements Regulation. The ITS specify the type and format of information to be published in accordance with the new CRR requirements on disclosure of prudential information on ESG risks.

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The FCA has published two policy statements introducing new rules and guidance on climate-related disclosures for standard listed issuers and certain other FCA-regulated firms. The Policy Statements mirror the rule imposed under the FCA's Policy Statement on climate-related disclosures for premium listed issuers.

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The U.K. Financial Conduct Authority has published an environmental, social and governance strategy to support the financial sector in the transition to a "net zero", more sustainable and more inclusive economy.

The FCA's strategy is built on five themes supported by key actions that the FCA anticipates taking in the near future. U.K. regulated firms should expect significant engagement by the FCA on these issues.

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The U.K. Chancellor of the Exchequer, Rishi Sunak, has announced the U.K. Government's plans to make the U.K. the world's first net zero financial centre. Under the plans, U.K. financial institutions will need to have robust transition plans describing how they will support the transition to a carbon neutral economy. The U.K. Government intends to introduce legislative measures to make these requirements mandatory with a view to increased adoption by 2023 and will incorporate standards for these transition plans into its proposed Sustainability Disclosure Requirements, announced in October in its policy paper, Greening Finance: A Roadmap to Sustainable Investing, further details of which are set out in our related client note.

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The U.K. Financial Conduct Authority has published a discussion paper on its proposed Sustainability Disclosure Requirements and sustainable investment labels. The FCA is seeking initial views on these proposals with the intention of consulting on fuller policy proposals in Q2 2022. Responses to the discussion paper may be submitted until January 7, 2022. These proposals link to the U.K. government's ambitions on climate change and green finance, detailed in its October policy paper, Greening Finance: A Roadmap to Sustainable Investing, further details of which are set out in our related client note.

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The European Supervisory Authorities (the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority) have published a new final report and draft Regulatory Technical Standards on disclosures to be made under the EU Sustainable Finance Disclosure Regulation. The EU SFDR was published in December 2019 and the majority of its provisions have applied since March 10, 2021.

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The European Commission has published a study on EU banks’ integration of environmental, social and governance factors into their risk management processes, business strategies and investment policies. The study finds that, although banks have made efforts to pursue ESG agendas, the speed and degree of integration of ESG considerations must accelerate. In addition, it finds that prudential supervisors could take more action to integrate ESG factors into their supervision of banks. Further details of the challenges facing banks and supervisors in ESG integration are set out in the study. 

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The U.K. Financial Conduct Authority has opened a consultation on proposals to amend the requirements on diversity and inclusion on listed company boards and executive committees. The proposals include changes to the Listing Rules and the Disclosure and Transparency Rules, including guidance. The consultation closes on October 20, 2021. The FCA intends to publish final rules before the end of 2021 and for the new requirements to apply to accounting periods starting on or after January 1, 2022. This means that annual financial reports published for 2022 in spring 2023 would include the reporting changes.

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HM Treasury has announced a new independent group, called the Green Technical Advisory Group, to help tackle “greenwashing” and create a U.K. green taxonomy. “Greenwashing” refers to unsubstantiated or exaggerated claims that an investment is environmentally friendly. GTAG’s main remit is to advise HM Treasury on developing and implementing a U.K. green taxonomy, comprising technical screening criteria. GTAG consists of financial services industry representatives, non-financial services representatives, taxonomy and climate experts. HM Treasury, the U.K. Financial Conduct Authority and the Bank of England will be observers. GTAG is expected to provide initial recommendations to HM Treasury as early as September of this year.

View the GTAG Terms of Reference. 

The Financial Stability Board has published a series of three climate-related reports as part of its roadmap for addressing climate-related financial risks. The global risks to financial stability posed by climate change are being addressed by a number of international initiatives and the FSB hopes to utilize its diverse membership to coordinate efforts internationally. The FSB's reports are:

• a Roadmap for Addressing Climate-Related Financial Risks, which sets out a plan to address climate-related financial risks;
• a report on The Availability of Data with Which to Monitor and Assess Climate-Related Risks to Financial Stability, which reviews the availability of data to monitor and assess climate-related risks to financial stability and outlines priorities to address gaps in data; and
• a report on Promoting Climate-related Disclosures, which provides recommendations to financial regulators in developing frameworks for climate-related disclosures.

The U.K. Financial Conduct Authority, Prudential Regulation Authority and the Bank of England (as regulator for financial market infrastructure) have published a discussion paper on diversity and inclusion in the financial sector. Feedback to the discussion paper may be submitted until September 30, 2021. It is expected that the FCA and PRA will consult on detailed proposals in Q1 2022 and aim to issue final Policy Statements in Q3 2022. The regulators aim to develop policy, rules and guidance that set clear minimum expectations and note that they will be prepared to use their regulatory powers where a firm fails to meet those expectations. The regulators intend to introduce any new requirements proportionately.

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The U.K. Financial Conduct Authority has published two consultation papers that set out new proposals on climate-related disclosure rules for listed companies and certain regulated firms. The proposals follow the introduction of climate-related disclosure rules for the most prominent listed commercial companies in December 2020 that are aligned with the recommendations of the global Taskforce on Climate-related Financial Disclosures. Responses to the consultations may be submitted until September 10, 2021. The FCA is aiming to publish its final rules and policy statements for these proposals by the end of the year.

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The European Securities and Markets Authority has published a final report and advice addressed to the European Commission on the key performance indicators and methodology that firms subject to the EU Taxonomy Regulation should adopt when disclosing information on the extent of their environmentally sustainable activities. The EU Taxonomy Regulation was published in June 2020 and establishes a classification system for sustainable activities to provide a consistent, EU-wide understanding of the environmental sustainability of activities and investments. The Regulation imposes an obligation upon EU firms that report under the Non-Financial Reporting Directive to disclose information on how, and the extent to which, their activities constitute economic activities that are "environmentally sustainable" for the purposes of the Taxonomy Regulation. Corporates will have to begin disclosing information on certain environmental objectives from January 2022, with disclosures on other objectives disclosed from January 2023. Most provisions of the Taxonomy Regulation have applied directly across the EU since July 12, 2020.

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The European Banking Authority has published an opinion and a report on the key performance indicators and methodology that firms subject to the EU Taxonomy Regulation should adopt when disclosing information on the extent of their environmentally sustainable activities. The EU Taxonomy Regulation was published in June 2020 and establishes a classification system for sustainable activities to provide a consistent, EU-wide understanding of the environmental sustainability of activities and investments. The Regulation imposes an obligation upon EU firms that report under the Non-Financial Reporting Directive to disclose information on how, and the extent to which, their activities constitute economic activities that are "environmentally sustainable" for the purposes of the Taxonomy Regulation. Corporates will have to begin disclosing information on certain environmental objectives from January 2022, with disclosures on other objectives disclosed from January 2023. Most provisions of the Taxonomy Regulation have applied directly across the EU since July 12, 2020.

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The European Supervisory Authorities (the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority) have published a final report and draft Regulatory Technical Standards on the content, methodologies and presentation of disclosures under the EU Regulation on sustainability-related disclosures in the financial services sector. The EU SFDR was published in December 2019 and the majority of its provisions will apply from March 10, 2021. It is designed to encourage the financial services sector to disclose information about their approaches to sustainability risk and consideration of adverse sustainability impacts in the course of their businesses. The ESAs consulted on the draft RTS in April 2020. The ESAs propose that the draft RTS should apply from January 1, 2022.

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The U.K. Financial Conduct Authority has published a policy statement introducing a new rule and guidance on climate-related disclosures for commercial companies with a U.K. premium listing.

The new rule, which will apply for accounting periods beginning on or after January 1, 2021, will require premium-listed commercial companies to state in their annual reports whether they have made disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures and, if they have not done so, explain why that is the case. The first financial reports containing these disclosures are expected to be published in Spring 2022.

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The Financial Stability Board has published a report on the Implications of Climate Change for Financial Stability. The report breaks climate-related financial stability risks down into three key categories: (i) physical risks (i.e., risks of economic losses caused by natural catastrophes); (ii) transition risks (i.e., risks arising from the process of adjusting to a low carbon economy); and (iii) liability risks (i.e., risks arising from parties being held liable for losses caused by environmental damage).

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The Financial Stability Board's Task Force on Climate-Related Financial Disclosures has published its 2020 Status Report, describing progress in the global adoption of the TCFD's recommendations. 

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The European Banking Authority has published a survey designed to collect information on large banks' disclosure practices on environmental, social and governance risks. The EU Capital Requirements Regulation implements the Basel Committee on Banking Supervision's Pillar 3 disclosure requirements, which require banks to disclose information about their risks and risk management procedures and policies. In 2018, the Basel Committee published updated Pillar 3 requirements. The revised CRR, published in June 2019, incorporates the revised Basel Committee disclosure standards and mandates the EBA to produce draft Implementing Technical Standards to ensure comparability of the disclosures made with international non-EU active banks.

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The U.K. Climate Financial Risk Forum has published its first guide providing practical recommendations for the financial services sector on how to respond to climate-related financial risks. The CFRF was established by the U.K. Prudential Regulation Authority and Financial Conduct Authority and is made up of industry representatives from the banking, insurance and asset management sectors, as well as others such as the London Stock Exchange Group and the Green Finance Institute. The CFRF aims to build capacity and share best practice across the finance industry in order to improve the financial services sector's response to the financial risks arising from climate change.

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The EU Technical Expert Group on Sustainable Finance has published a statement on five high-level principles for recovery and resilience. The statement is made in the context of the EU’s current discussions about recovery and resilience in response to the coronavirus pandemic. The TEG is proposing the five principles supported by recommendations for applying the EU’s Taxonomy to the EU’s recovery plan. The Taxonomy is set out in a recently adopted EU Regulation on the establishment of a framework to facilitate sustainable investment. The Taxonomy is a classification system for sustainable activities that is designed to provide a shared understanding of the environmental sustainability of activities and investments.

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A new EU Regulation on the establishment of a framework to facilitate sustainable investment (commonly referred to as the Taxonomy Regulation) has been published in the Official Journal of the European Union. The Taxonomy is a classification system for sustainable activities that is designed to provide a shared understanding of the environmental sustainability of activities and investments. The Regulation sets out the environment objectives for the Taxonomy and the criteria for determining whether an economic activity qualifies as environmentally sustainable. It also makes various amendments to the Sustainable Finance Disclosure Regulation, including requiring the European Supervisory Authorities to develop regulatory technical standards specifying the content and presentation of information demonstrating that a given investment does not significantly harm relevant environmental objectives. 

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The European Securities and Markets Authority has published its 2019 Annual Report together with an updated version of its 2020 Work Program, incorporating changes in response to the COVID-19 pandemic.
 
ESMA’s 2019 Annual Report discusses ESMA’s work in 2019, which included: (a) the entry into force of EMIR 2.2, including significant new responsibilities for ESMA in the authorization and supervision of CCPs; (b) ESMA’s common supervisory action on the application of the revised Markets in Financial Instrument Directive’s requirements on the assessment of appropriateness, for which ESMA will consider whether any follow-up work is needed in 2020; (c) reviews of MiFID II and the Markets in Financial Instruments Regulation, including on fair access to, and lowering the cost of, market data and the consolidated tape; and (d) sustainable finance, including technical advice delivered to the European Commission on the integration of sustainability risks for investment firms and investment funds into relevant EU legislation, a report on undue short-termism in securities markets and contributions to the technical expert group on sustainable finance which is due to deliver technical advice on delegated legislation relating to the EU Benchmarks Regulation.

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The European Commission has published a consultation on the establishment of an EU Green Bond Standard. The EU's GBS initiative forms part of the European Green Deal, which aims to increase the EU's climate action and environmental policy ambitions. The proposed GBS will establish standards and labels for green financial products and instruments. In June 2019, the EU Technical Expert Group on Sustainable Finance published a report on the proposed GBS, setting out ten recommendations for the substance of the GBS and for how market participants and regulators could support and monitor it. In March 2020, the TEG also published a Usability Guide to the GBS, setting out the TEG's views on its application, including confirming its view that the GBS should be voluntary. The TEG's March 2020 report also included a series of recommendations for the secondary legislation to be published in connection with the EU's proposed Taxonomy Regulation. The Commission and TEG recently published joint FAQs on the EU taxonomy and GBS.

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The European Commission has published Frequently Asked Questions on the EU taxonomy and Green Bond Standard. The EU taxonomy is a classification system that will create a common language for sustainable activities, to help determine whether an economic activity is environmentally sustainable. The Green Bond Standard establishes labels for financial products that are judged to be "green". The taxonomy and Standard are two products of the Commission's 2018 Action Plan on Financing Sustainable growth. 

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