The Green Investing Standard That Could Set the Global Bar

The EU Taxonomy for Sustainable Activities (‘EU Taxonomy’) has the potential to become a global standard. Certain disclosure against the Taxonomy known as the Sustainability-Related Disclosures in the Financial Services Sector (‘SDR’) which includes pre-contractual and periodic reporting obligations became effective earlier this week on 10 March. The SDR is mandatory for asset managers, insurers, hedge funds and pension funds. It requires institutional investors to publish ESG-related risks and impacts into categories ranging from those that don’t consider sustainability to those for which it is a central objective. Required disclosure of quantitative metrics include carbon footprint, greenhouse-gas emissions, and hazardous waste emissions. Given the financial risks associated with carbon price fluctuations, stranded assets and extreme weather events there is strong market-based incentives for such disclosures. Proposed revisions to the Non-Financial Reporting Directive expected from the EU in April. As the EU Taxonomy can be used for projects internationally, it’s possible it could become implemented in other jurisdictions. Investors subject to similar guidelines by Banque de France starting in 2016 cut their financing of fossil fuel companies by nearly 40% compared with domestic and international groups not covered by the rules. The U.K. government seeks to make London a green-investment hub with it’s own sustainability disclosure standards underway.