Financial Crime World

EU’s Push for Sustainable Investment Transparency: A New Era for Financial Markets

The European Union has taken a significant step towards promoting environmental and social responsibility by introducing regulations aimed at enhancing transparency in financial markets. As of December 27th, 2022, financial institutions are required to disclose information on their sustainable investment activities, marking a major shift towards a more environmentally conscious and socially responsible approach.

The Sustainable Finance Disclosure Regulation (SFDR)

The EU’s SFDR, adopted in June 2020, sets out guidelines for financial institutions to provide clear and consistent information on their environmental, social, and governance (ESG) practices. The regulation applies to investment products, such as pension funds and insurance contracts, as well as to the activities of banks and other financial institutions.

Supporting Regulations

The SFDR is supported by a series of implementing regulations, including:

  • Commission Delegated Regulation (EU) 2021/2178: specifies the content and presentation of information on environmentally sustainable economic activities
  • Commission Delegated Regulation (EU) 2021/2139: establishes technical screening criteria for determining whether an economic activity qualifies as contributing to climate change mitigation or adaptation

Pension Product Transparency

In addition to these regulations, the EU has also introduced measures to promote transparency in pension products. The Pan-European Personal Pension Product (PEPP) regulation, adopted in 2019, requires pension providers to provide clear and concise information on their investment strategies and ESG practices.

Czech National Bank Regulations

The Czech National Bank (CNB) has implemented various regulations aimed at promoting financial stability and prudential oversight. Decrees such as:

  • No. 209/2021 Coll.: on remuneration of liquidators
  • No. 346/2013 Coll.: on reporting of banks and foreign bank branches to the CNB

are designed to ensure that financial institutions operate in a safe and transparent manner.

Implications for Financial Institutions

The move towards greater transparency is expected to have far-reaching implications for the financial industry, as investors increasingly demand information on ESG practices from their financial advisors. With the EU’s regulations now in place, it remains to be seen how financial institutions will respond to these new requirements, but one thing is clear: the era of sustainable finance has officially arrived.

Key Takeaways

  • The European Union’s Sustainable Finance Disclosure Regulation (SFDR) requires financial institutions to disclose information on their environmental, social, and governance (ESG) practices.
  • The SFDR applies to investment products, such as pension funds and insurance contracts, as well as to the activities of banks and other financial institutions.
  • The Czech National Bank has implemented various regulations aimed at promoting financial stability and prudential oversight.
  • Financial institutions are expected to provide clear and concise information on their ESG practices, including investment strategies and sustainable investment activities.