ESG Regulation Monthly Round-Up – October 2022

In a busy month for ESG and sustainability-disclosures developments, we take a look back at key developments such as the long-awaited publication of the UK FCA proposals around sustainability related disclosures and labelling and other key UK/EU developments in relation to sustainability related disclosures and the Taxonomy Regulation published throughout October 2022.

UK developments

FCA released Consultation Paper CP22/20 on the UK Sustainable Disclosure Requirements

On 25 October, the UK Financial Conduct Authority (FCA) published its long-awaited proposed rules for the UK’s equivalent to the EU Sustainable Finance Disclosure Regulation (SFDR), the Sustainability Disclosure Requirements (SDR).

Key takeaways from CP22/20

The FCA is proposing to introduce:

  • Sustainable investment product labels that will give consumers the confidence to choose the right products for them and navigate the investment product landscape as well as enhancing trust.

    There will be three categories for sustainable investment products:
  1. sustainable focus (for products investing in assets that are environmentally or socially sustainable);
  2. sustainable improvers (for products investment in assets to improve the environmental or social sustainability over time, including in response to the stewardship influence of the firm); and
  3. sustainable impact (for products investing in solutions to environmental or social problems to achieve positive, measurable real-world impact). The labels are all underpinned by objective qualifying criteria and assess products on the sustainability objective they are seeking to achieve. The criteria are also designed to provide flexibility to accommodate different sustainability objectives for continued evolution and innovation in the market within clear guardrails.
  • Naming and marketing rules - restrictions on how certain sustainability-related terms – such as ‘ESG’, ‘green’ or ‘sustainable’ – can be used in product names and marketing materials for products which do not qualify for the sustainable investment labels.
  • A general anti-greenwashing rule which will reiterate requirements for all regulated firms that sustainability-related claims must be clear, fair and not misleading. This rule will come into effect immediately on publishing the final rules at the end of H1 2023 given that it aims to clarify existing rules.
  • Consumer-facing product disclosures to help consumers understand the key sustainability-related features of an investment product – this includes disclosing investments that a consumer may not expect to be held in the product.
  • Detailed disclosures, targeted at a wider audience (e.g. institutional investors or retail investors) that want to know more including the following:
    • Pre-contractual disclosures (e.g. in the fund prospectus), covering the sustainability-related features of investment products
    • Ongoing sustainability-related performance information including key sustainability- related performance indicators and metrics, in a sustainability product report
    • A sustainability entity report covering how firms are managing sustainability-related risk and opportunities
  • Requirements for distributors of products, such as investment platforms, to ensure that the labels and consumer-facing disclosures of products are accessible and clear to consumers.

For further details, please access the following Engage article here.

UK ASA first ruling against a bank for greenwashing

For the first time, the UK Advertising Standards Agency (ASA) made a ruling against a bank for misleading customers about its green credentials (i.e. greenwashing). HSBC must ensure that the offending advertisements do not appear again.

HSBC misled consumers with its bus-shelter posters proclaiming its green credentials at the time of the global climate-change summit last autumn, the advertising regulator has ruled.

The ASA found that HSBC "omitted material information” in an advertising campaign timed to coincide with COP26 in Glasgow and were therefore misleading. HSBC had advertised how it was involved in planting two million trees and helping corporate clients in the transition to net-zero carbon emissions with $1 trillion of financing. However, it failed to mention that, as a big bank, it was also financing companies that emitted CO2 and other greenhouse gases, the ASA said. The ASA rejected the bank’s argument that consumers knew fossil-fuel production would still have to be financed during the transition and that it would continue to provide that funding ahead of the net-zero target date of 2050.

EU developments

Taxonomy Regulation

European Commission publishes further FAQs on sustainability disclosures under Article 8 of EU Taxonomy Regulation

On 6 October 2022, the European Commission published the final version of its 33 frequently asked questions (the 2022 FAQs) on the interpretation of the reporting obligations pertaining to eligible economic activities and assets imposed under Article 8 of the EU Taxonomy Regulation and the Disclosures Delegated Act.

The 2022 FAQs complement previous FAQs published by the Commission in December 2021 and support disclosures under Article 8 of the EU Taxonomy Regulation ((EU) 2020/852), which requires large public interest entities to include additional information in their non-financial statements on how and to what extent their activities are associated with environmentally sustainable economic activities that are aligned with the EU Taxonomy Regulation. The FAQs also aim to clarify the content of the Commission Delegated Regulation (EU) 2021/2178 (Disclosures Delegated Act)), which sets out the content and presentation of information to be disclosed. They were published in draft in February 2022.

European Commission amends SFDR RTS to incorporate nuclear and gas disclosures

On 31 October 2022, the European Commission adopted a Delegated Regulation and Annexes that amend and update the regulatory technical standards laid down in Delegated Regulation (EU) 2022/1288 (SFDR RTS) regarding the content and presentation of information in relation to disclosures in pre-contractual documents and periodic reports for financial products investing in environmentally sustainable economic activities. The amendments aim to ensure investors receive the required information set out in Commission Delegated Regulation (EU) 2022/1214, the Complementary Climate Delegated Act (CDA).  This includes information to be provided in pre-contractual documents, on websites and in periodic reports about the exposure of financial products to investments in fossil gas and nuclear energy activities.   The amended Delegated Regulation will also require financial market participants to disclose by way of a graph the extent to which their portfolios are exposed to the gas and nuclear-related activities that comply with the EU Taxonomy, as set out in the CDA. The adoption of the legislation follows a September 2022 report from the ESAs on disclosure of financial products’ exposure to investments in fossil gas and nuclear energy activities under the EU SFDR.

In terms of next steps, the draft Delegated Regulation will be formally transmitted to the European Parliament and the Council, who will have three months to scrutinise it.  

EU Platform on Sustainable Finance publishes report on human rights minimum safeguards under Taxonomy Regulation

On 11 October 2022, the EU Platform on Sustainable Finance published its final report on minimum safeguards under the Taxonomy Regulation ((EU) 2020/852). The Platform consulted on the draft report in July 2022.

Articles 2 and 18 of the Taxonomy Regulation require environmentally sustainable economic activities to comply with minimum safeguards meaning that organisations must implement procedures aligned with specified international human rights requirements (including the UN Guiding Principles for Business and Human Rights).

The report provides recommendations on assessing compliance with minimum safeguards for human rights (including workers' rights), bribery and corruption, taxation and fair competition. The main recommendations are for the European Commission to treat the following as evidence of non-compliance with the minimum safeguards:

  • Inadequate or non-existent corporate due diligence processes on human rights (including labour rights, bribery, taxation and fair competition), or a final liability on any of these matters. (The July 2022 draft suggested "final conviction … in court" instead of "final liability".)
  • Failing to co-operate with a national contact point (NCP) (under the OECD Responsible Business Conduct Guidelines for Multinational Enterprises) or an assessment of non-compliance with the OECD Guidelines by an OECD NCP.
  • Failing to respond to allegations by the Business and Human Rights Resource Centre.

The report also assesses the connections between the minimum safeguards and the SFDR, the proposed Corporate Sustainability Reporting Directive (CSRD) and the proposed Corporate Sustainability Due Diligence Directive (CSDDD). The Platform considers that it should revise the report once the proposed CSRD and CSDDD are finalised. The report is not binding on the Commission and it will be interesting to see the EU Commission’s response and approach to the Platform’s recommendations.

EU Platform on Sustainable Finance report on data and usability of EU Taxonomy

On 11 October 2022, the EU Platform on Sustainable Finance published a report setting out recommendations on data and usability of the EU Taxonomy.

The recommendations made in the report relate to the following key themes:

Recommendations on proposed changes to Level 1 or Level 2 regulations on EU Taxonomy reporting, to support both the 2024 review period (within Article 8 of Commission Delegated Regulation (EU) 2021/2178 (Disclosures Delegated Act)) and considering key usability challenges with the current proposals around sustainable finance disclosures.

  • Recommendations for supplementary guidance from the European Commission to user groups.
  • Recommendations for supervisory guidance from the European Supervisory Authorities (ESAs) to user groups.
  • Proposed recommendations on policy consistency across the sustainable finance framework.
  • Proposed recommendations on EU Taxonomy usability.

The report includes a summary of the themes prioritised as high, medium or low based on the urgency with which they are addressed to support upcoming and implemented sustainable finance reporting obligations.

Part 7 of the report sets out recommendations on future Platform work, including advice already underway as well as potential areas for further advice, if requested by the Commission.


EBA report on incorporating ESG risks in investment firms’ supervision

On 24 October 2022, the European Banking Authority (EBA) published a report (EBA/REP/2022/26) on incorporating ESG risks in the supervision of investment firms.

The report, which is addressed to NCAs, sets out the foundations for integrating ESG risks-related considerations in the supervisory process for investment firms. It provides an initial assessment of how ESG factors and risks could be included in the supervisory review and evaluation process (SREP).

Acknowledging the current limitations related to data and methodologies in assessing ESG risks, the EBA recommends that integrating ESG aspects in the supervisory process could follow a gradual approach, prioritising the recognition of ESG risks in investment firms' strategies, governance arrangements and internal processes and later incorporating them in the assessments of risks to capital and liquidity.

The report, which has been sent to the European Parliament, the Council of the EU and the European Commission, was produced under the EBA's mandate in Article 35(d) of the Investment Firms Directive ((EU) 2019/2034) (IFD).

ESMA work programme for 2023

On 10 October 2022, ESMA published its work programme for 2023, which sets out its priorities in relation to enhancing investor protection and promoting stable and orderly financial markets.

Sustainable finance is one of ESMA's two thematic drivers alongside technological change and data usage.

On sustainable finance, ESMA plans to:

  • Deliver the priorities set out in its Sustainable Finance Roadmap 2022-24 including analysing the drivers of greenwashing and developing instruments and tools to enable national supervisors to best address this risk.
  • Contribute to facilitating the financing of the EU transition towards a more sustainable economy. In 2023, ESMA expects to be mandated to deliver several reports, technical advice and technical standards to support the regulatory framework for sustainable finance. This includes opinions on the sustainability reporting standards under the CSRD, initial work on the first set of technical standards mandated by the proposed Regulation for European Green Bonds, as well as regulatory work required under the SFDR.
  • Continuously monitor the need for additional guidance under the SFDR, the MiFID II Directive, the Taxonomy Regulation, CSRD and the Benchmarks Regulation with a view to promoting convergence of supervisory approaches.

The work programme has been published at the same time as ESMA's Strategy for 2023-28, which sets out ESMA's long-term focus and objectives.

In addition, on 27 October 2022, ESMA reported that it is changing its Union Strategic Supervisory Priorities (USSPs) to include ESG disclosures alongside market data quality. The new priority of ESG disclosures replaces costs and performance for retail investment products and represents an important step in the implementation of the ESMA's Strategy for 2023-28, which gives a prominent role to sustainable finance.

ESMA and the National Competent Authorities (NCAs) intend to accompany the growing demand for ESG-related financial products. It aims to foster transparency and comprehensibility of ESG disclosures across key segments of the sustainable finance value chain such as issuers, investment managers or investment firms and, hence tackle greenwashing.

Next steps

We will continue to monitor for further developments in this fast moving and ever-evolving area.


Authored by Rita Hunter, Julia Cripps and Melanie Johnson.

Rita Hunter
Julia Cripps
Melanie Johnson
Senior Knowledge Lawyer
Jochen Seitz
Eoin O Connor
Managing Partner
Pierre Reuter
Office Managing Partner
Sarah Wrage


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