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Irish funds may have to revisit taxonomy disclosures over updated guidance from ESAs

Out-Law News | 07 Apr 2022 | 10:24 am | 1 min. read

New sustainability taxonomy and disclosure guidance published by European financial regulators is “very much at odds” with the approach taken by many Irish investment funds, according to one legal specialist.

Áine Ní Riain of Pinsent Masons said that in December, most funds in Ireland had decided to include an explanation of why they were not yet able to accurately calculate their percentage taxonomy-alignment in financial disclosure documents, an approach that was generally “considered to be more accurate than the 0% alignment approach that the European supervisory authorities (ESAs) indicated was favoured” late last year.

“As the initial taxonomy regulation disclosures were being prepared, the ESAs suggested that they favoured a 0% taxonomy-alignment disclosure,” she said. But the ESAs now expect financial market participants to provide specific quantitative information on the extent to which the investments underlying their financial products comply with the EU’s taxonomy in their prospectuses and annual reports.

“While it is positive to receive some clarity from the ESAs on what is needed around the pre-contractual disclosures, the latest expectations are very much at odds with the approach widely taken amongst Irish funds up to now,” Ní Riain said. “Irish funds are meeting with the Irish Central Bank to clarify how this new guidance will impact on the disclosures already provided for in Irish prospectuses and supplements - and how the Central Bank’s current position will be adjusted in light of it.”

It comes after the ESAs updated their joint supervisory statement on how market participants should use the transition period before the EU regulation on sustainability‐related disclosures in the financial services sector comes into force in 2023. The updated statement (10-page PDF/231 KB) replaces the original joint supervisory statement published in February 2021.

The statement clarifies the ESAs' expectation that market participants and national competent authorities should apply the measures of the disclosure regulations as well as the EU's taxonomy regulation during the transition period until 1 January 2023.

While the ESAs expect financial market participants to disclose quantitative information on how well their investments comply with EU taxonomy during the transition period, if there are no business reports from the investee companies on this, fund providers may determine the extent of taxonomy compliance using equivalent data. Such information can be obtained from the businesses themselves or from third-party providers. Estimates are, however, no longer permitted.