EU Sustainable Finance Action Plan Solutions
A comprehensive suite of solutions to help investors on every step of their EU Sustainable Finance Action Plan regulatory journey
The EU Sustainable Finance Action Plan is the EU’s action plan to integrate sustainability considerations into its financial policy. Building on the recommendations of the High-Level Expert Group on sustainable finance’s report from January 2018, it aims to:
Reorient capital flows towards sustainable investments in order to achieve sustainable and inclusive growth
Manage financial risks stemming from climate change, resource depletion, environmental degradation and social issues
Foster transparency and long-termism in financial and economic activity.
Sustainalytics and Morningstar are committed to helping clients on every step of their EU Sustainable Finance Action Plan regulatory journey. We have further ramped up capacity to produce new research and incrementally and continuously enhance our solutions as regulatory requirements are finalized and corporate reporting improves, providing clients with a full solution at both company/security and portfolio level well ahead of regulatory deadlines.
Our solutions align with the following three components of the EU Sustainable Finance Action Plan:
Click through the tabs below for all solutions:
EU Taxonomy Solution
The Taxonomy is a classification framework designed to determine whether an economic activity is environmentally sustainable. There are three main criteria that activities will be screened on to determine alignment with Taxonomy objectives:
1. Substantial Contribution
2. Do No Significant Harm
3. Minimum Safeguards
Our EU Taxonomy Solution provides ESG research and data that assesses clients’ holdings and portfolio alignment to the EU Taxonomy.
We currently offer a Taxonomy Data solution and a Managed Portfolio Service. The Managed Portfolio Service provides a portfolio-level alignment assessment and the Data solution provides company-level assessment along with the supporting underlying company-level data.
Companies receive one of four assessments: Aligned (/With Warning), Partially Aligned (/With Warning), Not Aligned and No Evidence.
Portfolio Management and Reporting
- Report on portfolio alignment to EU Taxonomy and underlying criteria
- Manage or improve alignment of portfolios on an ongoing basis
Company Screening: Undertake portfolio screening to flag companies with likely non-compliance with the DNSH or MS criteria
Product and Fund Construction: Consider Taxonomy alignment in the construction and management of ESG & impact funds
Engagement: Use as basis for engaging with corporates. For example, where there is:
- Indication of non-compliance to DNSH or MS criteria
- Data gaps or insufficient disclosure on economic activities (SC)
In 2021 we will enhance our solution on two fronts:
1. Adding activity-based involvement research for all Taxonomy activities. This will provide revenues, CAPEX and OPEX data (where available) associated with Taxonomy activities, supporting a substantial contribution assessment.
2. Portfolio/fund level aggregation
Our data and reporting solutions will also soon be available through Morningstar and Sustainalytics platforms.
The EU Taxonomy takes effect in January 2022 for two of the six objectives: climate change mitigation and adaptation. The remaining four objectives take effect in January 2022. Presentation standards for Taxonomy disclosures are expected around mid-2021.
Sustainable Finance Disclosure Regulation
The Sustainable Finance Disclosure Regulation (SFDR) aims to improve the disclosure on how financial market participants integrate ESG considerations into their decision-making and risk management processes. It also aims to increase financial intermediaries’ transparency duties to end-investors regarding sustainability risks and sustainable investment targets.
Our mapping service enables investors to understand how they can use our existing research to meet a substantial part of the reporting requirements. We have mapped the initial list of Principle Adverse Indicators (PAIs) to our current research. We also have an ‘Indicator compilation’ available, with example data for the draft PAIs.
Reporting fund disclosures to clients
Depending on the technical standards’ regulatory update expected in January, we will provide a data feed with available PAI data in Q1 2021. We aim to provide maximum possible coverage of the PAIs by Q4 2021, ahead of regulatory timelines for PAI disclosure requirements.
Level 1, or principles-based regulation of the SFDR takes effect in March 2021.
Level 2, or regulatory technical standards of the regulation have been postponed. An important element of regulatory technical standards is the requirement that financial market participants start reporting on a set of PAIs on entity level by June 2022 (for investment decisions made between June 2021 and December 2021) and possibly on financial product level by December 2022 (to be confirmed in the regulatory technical standards). The final regulatory technical standards are expected in January 2021.
In light of the EU Action Plan, the EU Benchmarks Regulation has been amended on two fronts:
- Creation of minimum standards for two new types of climate benchmarks: the EU Climate Transition Benchmarks (EU CTB) and EU Paris-aligned Benchmarks (EU PAB).
- Definition of ESG disclosure requirements – applicable to all investment benchmarks.
Sustainalytics offers an EU Benchmarks Mapping service. This service maps our ESG research and data to EU benchmark requirements. Our Mapping helps index providers and benchmark administrators meet mandatory benchmark ESG reporting and disclosure obligations and to screen companies on their eligibility for EU Climate Benchmarks.
In Q1 2021 we will provide EU Benchmarks Data via data feeds. In the course of 2021 and 2022 we will expand our coverage of the requirements.
Key Features and Benefits
Trusted ESG provider: Leveraging 25+ years of existing research
Universe coverage of 12,000+ companies across 138 sub-industries
Research team exclusively focused on the EU Sustainable Finance Action Plan
Criteria-specific mapping and data