A step closer - the Framework Regulation passes another vote

22 June 2020 update

The Framework Regulation was published in the Official Journal on 22 June 2020.

18 June 2020 update

As we flagged in our earlier Insight below, on 18 June 2020, the European Parliament duly adopted the Framework Regulation.

The Parliament’s press release is here, while the text voted through can be found here.

We now await the Regulation’s publication in the OJ in due course.

What’s new?

The EU is now one step closer to finalising and publishing the lynchpin of its suite of ESG legislative texts, the Framework (or Taxonomy) Regulation.

Although the text of the Regulation was agreed in December last year, this needed to be formally adopted by each of the EU’s two legislative bodies, the Council of the EU (which represents the governments of the 27 Member States) and the European Parliament (EP).

The Council adopted the text in April but, because it made small changes to the wording which had been agreed with the EP, it has fallen to the two committees which developed the EP’s original negotiating position (ECON and ENVI) to confirm by a vote that they are happy with the revisions. Which they have done today.

The text will now move to a final endorsement by the EP as a whole in a plenary vote - we anticipate that this will be during the session to be held between 17 and 19 June.

Assuming there are no problems in clearing that final hurdle (and none is expected), the Regulation will then be published in the Official Journal - sometime in July seems to be the most likely date for this.

Why do I need to know about the Framework Regulation?

Although, perhaps, less directly relevant to asset managers then the EU’s Disclosures Regulation, the Framework Regulation still plays an important role since it establishes a classification system (or taxonomy) - a common language which businesses will use when identifying whether an economic activity (and, consequently, an investment) can be considered to be environmentally sustainable.

In turn, this will help asset managers assess what they need to include in the various policies and disclosures that they will be required to make under the Disclosures Regulation.

So, what does environmentally sustainable mean?

Put simply, an economic activity will be environmentally sustainable where it:

• contributes substantially to any of a series of defined environmental objectives;
• does not significantly harm any of the environmental objectives;
• complies with a series of minimum social safeguards; and
• complies with specific performance thresholds (or technical screening criteria) - these will be developed as Level 2 measures in due course.

The environmental objectives that the first two bullet points above refer to are:

• climate change mitigation;
• climate change adaptation;
• sustainable use and protection of water and marine resources;
• transition to a circular economy;
• pollution prevention and control; and
• protection and restoration of biodiversity and ecosystems.

Our resources to help you

Simmons & Simmons has a range of resources to help guide you through what you need to know about the EU’s ESG initiative.

For our Sustainable Financing and ESG Investment website, see here.

For a summary of the key aspects of the Disclosures Regulation of most relevance to asset management firms, see here.

For a detailed look at the ESAs’ proposals for Level 2 measures under the Disclosures Regulation, see here.

For a summary of the Top 10 Things asset managers need to know about the EU ESG initiative, see here.