This page provides details of work being undertaken by governments, regulators and standard setting bodies in relation to sustainable finance and climate-related disclosures. AREF's Public Policy Committee and ESG & Impact Investing Committee monitor how this work will affect real estate funds and, where appropriate, respond to related consultations. If you would like to contribute to this work please contact Jacqui Bungay ([email protected]).
ESG Metrics for Real Estate
On 12 January 2024, a Working Group, with members from AREF and other real-estate related associations, updated proposals on ESG metrics for real estate. More details can be found here.
ESMA - Sustainable Finance Regulatory Framework
On 24 July 2024, ESMA set out possible long-term improvements to the EU Sustainable Finance Regulatory Framework ('Framework') "Sustainable investments: Facilitating the investor journey - A holistic vision for the long term".
ESMA acknowledges that the Framework is already well developed and includes safeguards against greenwashing. At the same time, ESMA considers that, in the longer-term, the Framework could further evolve to facilitate investors’ access to sustainable investments and support the effective functioning of the Sustainable Investment Value Chain.
Main recommendations for the European Commission’s consideration:
- The EU Taxonomy should become the sole, common reference point for the assessment of sustainability and should be embedded in all Sustainable Finance legislation;
- The EU Taxonomy should be completed for all activities that can substantially contribute to environmental sustainability and a social taxonomy developed;
- A definition of transition investments should be incorporated into the Framework to provide legal clarity and support the creation of transition-related products;
- All financial products should disclose some minimum basic sustainability information, covering environmental and social characteristics;
- A product categorisation system should be introduced catering to sustainability and transition, based on a set of clear eligibility criteria and binding transparency obligations;
- ESG data products should be brought into the regulatory perimeter, the consistency of ESG metrics continue to be improved, reliability of estimates ensured; and
- Consumer and industry testing should be carried out before implementing policy solutions to ensure their feasibility and appropriateness for retail investors.
This Opinion builds on the findings of the ESMA Progress Report on Greenwashing and the Joint ESAs Opinion on the review of the SFDR. The Opinion also represents the last component of ESMA's reply to the EC Request for input related to greenwashing, next to the Final Report on Greenwashing (see below).
ESMA - Greenwashing
In June 2024, ESMA's Final Report on Greenwashing was published alongside similar reports from two other European Supervisory Authorities (ESAs), EBA and EIOPA. This builds on the findings of ESMA's Progress Report on Greenwashing published in May 2023. The three ESAs had published a Call for Evidence on better understanding of greenwashing in November 2022 to gather input from stakeholders on how to understand the key features, drivers and risks associated with greenwashing and to collect examples of potential greenwashing practices. More details can be found here.
ESMA - Guidelines on funds’ names using ESG or sustainability-related terms
On 14 May 2024, ESMA published its Final Report regarding Guidelines on funds’ names using ESG or sustainability-related terms. The Guidelines were published on 21 August 2024 in all official EU languages and will apply from 21 November 2024. Existing funds will have 6 months after the application date, i.e. 21 May 2025, to apply the Guidelines. Any new funds created after the application date should apply the Guidelines immediately.
The objective of the Guidelines is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names, and to provide asset managers with clear and measurable criteria to assess their ability to use ESG or sustainability-related terms in fund names.
The Guidelines establish that to be able to use these terms, a minimum threshold of 80% of investments should be used to meet environmental, social characteristics or sustainable investment objectives. The Guidelines also apply exclusion criteria for different terms used in fund names:
- “Environmental”, “Impact” and “sustainability”-related terms: exclusions according to the rules applicable to Paris-aligned Benchmarks (PAB); and
- “Transition, “Social” and “Governance”-related terms: exclusions according to the rules applicable to Climate Transition Benchmarks (CTB).
In cases of a combination of terms, use of transition, sustainability- and impact-related terms, and for funds designating an index as a reference benchmark, further criteria are specified in the Guidelines.
The Final Report containing the guidelines also provides a summary of the responses ESMA received to its consultation paper and an explanation of the approach taken to address the comments received.
ESMA - Sustainable Finance Implementation Timeline
The latest Sustainable Finance Implementation Timeline from ESMA for sustainable finance related regulations and directives.
EU’s SFDR
You can find the latest position on the EU’s SFDR here
FCA - Climate Financial Risk Forum
The Climate Financial Risk Forum (CFRF) is a financial services industry forum established jointly by the FCA and the Prudential Regulation Authority (PRA). CFRF Working Groups produce guidance, best practice, case studies and tools to help financial services firms identify, assess and respond to climate-related risks and opportunities.
FCA – Climate-Related Disclosures
The FCA's work on enhance climate-related disclosures can be found here.
FCA - Sustainability Disclosure Requirements (SDR) and investment labelling
In April 2024, the FCA published Finalised non-handbook guidance on the Anti-Greenwashing Rule (FG24/3) and a consultation (CP24/8) proposing to extend the SDR and investment labels regime to portfolio management services. This followed on from the FCA's Policy Statement (PS23/16) on Sustainability Disclosure Requirements (SDR) and investment labelling published in November 2023. More details can be found here, along with details of a consultation in Q4 2024 on minor amendments to the Anti-Greenwashing Rule and SDR.
AREF has produced guidance on the Application of the SDR Labelling Regime for Real Estate Funds.
FinDatEx - European ESG Template (EET)
The latest version of the European ESG Template (EET) can be found on the FinDatEx website. This is a stand-alone, cross-sectoral template for the exchange of ESG-related data.
ISOCO - Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management
In November 2021 IOSCO published its Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management.
In November 2022, they have followed this up with a Call for Action for all voluntary standard setting bodies and industry associations operating in financial markets to promote good practices among their members to counter the risk of greenwashing1 related to asset managers and ESG rating and data providers.
ISSB - Sustainability & Climate-Related Disclosures
In June 2023, the International Sustainability Standards Board (ISSB) published the following standards:
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
- IFRS S2 Climate-related Disclosures
- IFRS S2 Industry-based Guidance on implementing Climate-related Disclosures (including Volume 36 Real Estate (pages 292-321) and Volume 37 Real Estate Services (pages 322- 326))
In July 2023, IOSCO endorsed IFRS S1 and S2.
The FCA use the ISSB standards as a basis for their own climate-related disclosures and sustainability disclosure requirements.
UK Government - Climate Change Governance and Reporting for Occupational Pension Schemes
In June 2022, the Government Department for Work and Pensions (DWP) published the response to its open consultation on Climate and Investment reporting: setting expectations and empowering savers.
Amendments to the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2022 came into force on 1 October 2022. The Regulations require trustees to select and calculate a portfolio alignment metric and to report on that in their TCFD report.
Click here for more details.
The IA - SDR Implementation Guidance
In May 2024, the IA published an Implementation Guide for the FCA's SDR. This in a Question and Answer style and includes a question, along with the answer, on "How can the sustainability of real estate, as an asset class, be evidenced?"
UK Green Finance Strategy
In March 2023 HM Treasury, the Department for Energy Security and Net Zero (DESNZ), and the Department for Environment, Food & Rural Affairs (DEFRA) jointly published the UK Government's revised Green Finance Strategy.
UK Sustainability Reporting Standards
Within the Green Finance Strategy the Government committed to set up a framework to assess and decide whether to endorse IFRS Sustainability Disclosure Standards for use within a UK context.
In May 2024, the Department for Business & Trade published the Policy Paper: Framework and Terms of Reference for the Development of UK Sustainability Reporting Standards. The paper sets out the phases of work that need to be undertaken for the development of UK Sustainability Reporting Standards and to give effect to legislative or regulatory changes that may be made in future once the UK Sustainability Reporting Standards are finalised. The Secretary of State for Business and Trade (Secretary of State) will hold responsibility for endorsing IFRS Sustainability Disclosure Standards to create UK Sustainability Reporting Standards. The Secretary of State will be supported by recommendations and advice from the UK Sustainability Disclosure Technical Advisory Committee (TAC) and by the Department for Business and Trade (DBT). The FCA holds responsibility for implementation decisions that would apply to UK listed companies, while the UK government holds responsibility for implementation decisions that would apply to UK registered companies. The UK Sustainability Disclosure Policy and Implementation Committee (PIC) has been established by the government, to co-ordinate implementation decisions taken by DBT and the FCA. The terms of reference and membership of the TAC and PIC are included within the policy paper.
UK Sustainability Disclosure Requirements (SDR)
In May 2024, the UK Government published a Sustainability Disclosure Requirements: Implementation Update 2024. This sets out the actions the government and FCA plan to take over the next two years in relation to:
- Endorsement & Implementation of UK-endorsed ISSB standards based upon the IFRS Sustainability Disclosure Standards
- Transition plan disclosures
- Extending the scope of Suatianbility Discloure Regime (SDR)
- UK Green Taxonomy
Also, the government will continue to monitor work in relation to natural-related disclosures such as the Taskforce on Nature related Financial Disclosures (TNFD) and the ISSB’s Consultation on Agenda Priorities which recognises the importance of biodiversity, ecosystems, ecosystem services and human capital.
Related Articles
In November 2021 Oliver Light, Carbon Intelligence and Member of the ESG & Social Impact Committee and Melville Rodrigues, Apex and Member of the Public Policy Committee, suggested solutions to be prioritised by fund managers and regulators in relation to ESG and climate-related disclosures in an article in IPE. Click here to view this article in IPE.
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