Global Trustee and Fiduciary Services Bite-Sized Issue 8 2024

12 QUICK LINKS AIFMD CBDC CRYPTOASSETS CSDR FINTECH FSB FUND LIQUIDITY MAR MIFID II/MIFIR OPERATIONAL RESILIENCE REMUNERATION SUSTAINABLE FINANCE/ ESG UCITS ASIA PACIFIC EUROPE IRELAND NORTH AMERICA UNITED KINGDOM Global Trustee and Fiduciary Services Bite-Sized | Issue 8 | 2024 ESMA Sets Out its Long-termVision on the Functioning of the Sustainable Finance Framework On 24 July 2024, The European Securities and Markets Authority (ESMA) published an opinion on the Sustainable Finance Regulatory Framework (the Framework), setting out possible long-term improvements. 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. ESMA’s main recommendations for the European Commission’s consideration are: • 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. Link to the Opinion here FSB Stocktake of Regulatory and Supervisory Initiatives on Nature-related Financial Risks On 18 July 2024, the Financial Stability Board (FSB) published a stocktake of member financial authorities’ initiatives related to the identification and assessment of nature-related financial risks. The stocktake, which was delivered to the 25-26 July meeting of G20 Finance Ministers and Central Bank Governors in Rio de Janeiro, describes not only supervisory and regulatory initiatives, but central banks’ and supervisors’ analytical work on whether and how nature degradation, including loss of biodiversity, is a financial risk. The report highlights the FSB’s observations: • Financial authorities are at different stages of evaluating the relevance of biodiversity loss and other nature-related risks as a financial risk, with approaches varying, in part due to differing mandates. Some authorities have already concluded there is a material financial risk, while others remain at the stage of monitoring international work on the issue. A few authorities have decided not to work on this topic, due to data gaps and the need to give sufficient priority to climate risks (where analytical thinking and data are further progressed). • Financial authorities which are analysing the issue categorise nature-related risks into the same two types of risks typically used in climate-related financial risk analysis: physical and transition risks. However, analytical work faces major data and modelling challenges. Authorities’ work to date indicates that financial institutions face large exposures to physical risk via their investments and financing activities, but that analytical work needs to be further developed to better translate estimates of financial exposures intomeasures of risk. Authorities recognise the strong connections between climate risk and nature, and that more needs to be done to develop a more holistic approach that considers interdependencies between climate- and nature-related financial risks.