Thematic Review on Sustainability-Related Information in Remuneration Policies
Published 9 December 2022
Category: Impact and ESG
On 23 November 2022, the Danish Financial Supervisory Authority (“DFSA”) published a thematic review on sustainability-related information in remuneration policies. The DFSA reviewed information given by six selected pension funds and life insurance companies.
According to SFDR article 5, financial market participants (“FMPs”) must include in their remuneration policies information on how the policies are consistent with the integration of “sustainability risks”, and this information shall be published on the website of the FMP. A “sustainability risk” covers an “environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment”, cf. SFDR article 2(22). Therefore, it is a financial risk which a company and its investors as well as customers are exposed to. Sustainability risks differs from “sustainability impact” which covers situations where companies have an impact on environmental, social and governance issues (ESG).
Article 5 does not require FMPs to establish a connection between the FMP’s remuneration policy and its integration of sustainability risks. However, FMPs are required to disclose whether there is a connection, and if there is, to describe it.
The investigation showed that the majority of the surveyed companies had not provided adequate information. The DFSA found that the investigated FMPs often disclose whether the above-mentioned connection exist, but that information on how the connection is ensured is missing. Vague statements such as stating that the FMP considers sustainability risks in its remuneration policy is not adequate. Further, the DFSA found that several of the FMPs in their disclosures do not adequately distinguish between 1) how the remuneration policy seeks to contribute to the FMP’s sustainability objectives and 2) how it seeks to enhance the management of sustainability risks in the FMP’s investment process. Also, the DFSA underlined that in case of a connection between remuneration and integration of sustainability risks, it must clearly be described in the remuneration policy how the remuneration structure is contributing to ensuring non-excessive risk-taking regarding sustainability risks. Four of the investigated companies were on this basis given injunctions for insufficient information.
Based on the investigation, the DFSA has given the below recommendations, after which FMPs shall ensure:
- that the remuneration policy contains information on how the remuneration is in accordance with integration of sustainability risks, where sustainability risks are to be understood as financial risks, and that this information is published on the FMP’s website;
- that the remuneration policy describes, not only whether, but also how the remuneration policy is consistent with the FMP’s integration of sustainability risks. This entails that FMPs, which state that the remuneration policy is in accordance with the integration of sustainability risks, have to elaborate on how sustainability risks is considered as an element in variable remuneration schemes, etc.;
- that the FMPs comply with the information provided in their policy and that this can be proved.
- that the FMPs publish the relevant information required on a subsection to the FMP’s main website. It is not enough, that the information can be found only by using the search field.
- Consistency between the information provided on the website and the information provided in the remuneration policy.
The full report can be read here.
Tags: Sustainability
Also tagged ‘Sustainability’
EU Commission answers questions on interpretation of SFDR
The EU Commission has published its answers to questions on the interpretation of SFDR. The questions were put forward by the ESAs in September 2022 in order to receive clarification within central aspects of SFDR.
Disclosure RequirementsSustainabilityEU Commission answers questions on interpretation of SFDR
The EU Commission has published its answers to questions on the interpretation of SFDR. The questions were put forward by the ESAs in September 2022 in order to receive clarification within central aspects of SFDR.
Disclosure RequirementsSustainabilityConsultation on the ESAs review of SFDR
The European Supervisory Authorities (EBA, EIOPA and ESMA) have earlier this month published a consultation paper in which they propose amendments to the Commission Delegated Regulation.
Disclosure RequirementsESMARegulatory Technical StandardsSustainabilityThematic review of sustainability disclosures for funds with sustainable investment as the objective
On 3 February 2023, the Danish Financial Supervisory Authority (“DFSA”) published a thematic review of sustainability disclosures for eight funds with sustainable investments as their objective.
ComplianceDisclosure RequirementsSustainabilityPublic consultation on the update of the OECD Guidelines for Multinational Enterprises
In general, the Guidelines, last updated in 2011, are a set of non-binding recommendations to businesses for ensuring responsible business conduct in all areas where business interacts with society.
ComplianceGovernanceSustainabilityESMA consultation on the use of ESG or sustainability-related terms in fund names
On 20 February 2023, ESMA closed their consultation on Guidelines on funds' names using ESG or sustainability-related terms launched back in November 2022.
ComplianceESMASustainabilityOpinions issued on the draft European Sustainability Reporting Standards
The European Financial Reporting Advisory Group (EFRAG) submitted a draft set of European Sustainability Reporting Standards (ESRS Set 1) to the EU Commission in November 2022.
ComplianceESMASustainabilityNew development in Green Deal Industrial Plan
On 9 February 2023, a summit was held in the European Council in which, among other things, a green industrial plan and other measures to secure EU’s competitiveness going forward were discussed.
Cross-BorderGovernanceSustainabilityESG-related investing remains active
Fundraising for both new funds and startups in the ESG-related space seems insulated from the general decline in the market. Despite investors having seen a general market decline within VC investments (see also Startup whiplash hits some sectors harder than others) investing in ESG-related funds and startups continue.
SustainabilityEU unveils plan for future Net-Zero Industry Act and European Sovereignty Fund
Recently, the EU Commission presented a plan for a Net-Zero Industry Act and a European Sovereignty Fund as part of a bigger Green Deal Industrial Plan. The initiatives shall be seen in connection with the European Green Deal and the goal of making EU climate neutral by 2050.
Cross-BorderGovernanceSustainabilityRequirements for Gender Composition in Managements have Tightened
On 1 January 2023 new rules have imposed stricter requirements for targets and policies on the gender composition of managements. These rules cover both large Danish companies (covered by accounting class C), including state-owned and some listed companies (covered by accounting class D), as well as certain companies within the financial area
ComplianceDanish RegulationSustainabilityFinal Report on Minimum Safeguards
The European Commission expert group; Platform on Sustainable Finance, has published a final report on the minimum safeguards laid out in Article 3 and 18 of the Taxonomy Regulation. It replaces the draft report published in July 2022.
ComplianceSustainabilityFinal Adoption of the CSRD
The CSRD has now been finally adopted after the Council of the European Union on 28 November 2022 approved the European Parliament’s position. On 16 December 2022, the directive was published in the Official Journal. The date of entry into force is 20 days from the publication date.
ComplianceSustainabilityEU Legislation Takes Action Against Greenwashing
Lately, EU has sharpened its focus on preventing greenwashing as well as strengthening the sustainability reporting requirements. One step, among others, is the recent passing of the CSRD. Another is a proposal published in March 2022 by the European Commission with amendments for the Directive 2005/29/EC on Unfair Commercial Practices (UCPD) as well as the Directive 2011/83/EU on Consumer Rights.
Cross-BorderDanish RegulationSustainabilityA General Approach on the CSDD Directive Proposal Adopted by the Council
On 1 December 2022, the Council adopted its general approach on the proposal for a Directive on Corporate Sustainability Due Diligence (CSDDD) which was adopted by the European Commission on 23 February 2022. This completes the negotiations in the Council.
SustainabilityCSRD has been Passed by the European Parliament
The European Parliament has passed the Corporate Sustainability Reporting Directive (“CSRD”). CSRD replaces the Non-Financial Reporting Directive (“NFRD”), and introduces higher requirements of more detailed reporting, and a mandatory EU sustainability reporting standard.
ComplianceSustainabilityNew Recommendations from the Danish Council for Social Responsibility and Global Goals
The Council for Social Responsibility and Global Goals has presented 8 recommendations to the Danish government. The recommendations focus on how public authorities and companies can strengthen their transition to a circular economy and due diligence for sustainability.
SustainabilityInvest Europe ESG Reporting Guidelines: Setting the Industry Standard for ESG Reporting
Invest Europe has published a set of ESG reporting guidelines with the aim of providing user-friendly and advanced guidelines on sustainability reporting within the European private capital sector.
SustainabilityReview of SFDR Article 9 Funds by the Swedish FSA
The Swedish Finansinspektionen has reviewed 30 Swedish-registered UCITS- and special funds with sustainable investment as their goal (SFDR article 9 funds). Finansinspektionen analyzed how fund managers met the requirements for providing sustainability-related information to investors.
SustainabilityNew Guide on SFDR and EU Taxonomy Regulation
Invest Europe has published a comprehensive members guide on EU ESG reporting requirements for fund managers to clarify grey areas that exist around the day-to-day application of the regulation.
ComplianceDisclosure RequirementsSustainabilityAuthorised AIFMs’ Integration of Sustainability Factors and Risks Applies from 1 August 2022
Authorized AIFMs shall from 1 August 2022 ensure that their systems, processes, and internal controls reflect relevant sustainability risks as defined in the SFDR.
AIFMDComplianceDisclosure RequirementsSustainabilityESMA Provides Guidelines for Funds’ Use of ESG Related Terms
On 31 May 2022, the European Securities and Markets Authority (ESMA) published a supervisory briefing which provides guidance on sustainability risks and disclosures in investment management.
Disclosure RequirementsESMASustainabilityFinal Regulatory Technical Standards for SFDR and Taxonomy Regulation are Published
The RTS will define the new standard for sustainability-related disclosures in the financial services sector in the EU and supplements provisions of the SFDR and of the Taxonomy Regulation.
AIFMDComplianceDisclosure RequirementsSustainabilityInvest Europe to set ESG Reporting Standards
In November 2021, Invest Europe released its Climate Ambition in which the association committed to contribute to the EU becoming climate-neutral by 2050 and pledged to help the P/E and VC industry move towards net zero.
AIFMDComplianceDisclosure RequirementsSustainabilityThe Danish FSA: Significant Room for Improvement for SFDR Disclosures
The Danish FSA has assessed the quality of 4 pension companies and eight credit institutions' website disclosures with regards to information about their policies on the integration of sustainability risks in the investment decision-making process.
AIFMDComplianceDisclosure RequirementsSustainabilityApplication of SFDR Level 2 Obligations Delayed (Again)
The European Commission has once again delayed the application of the level 2 obligations of the Sustainable Finance Disclosure Regulation (SFDR) until January 2023.
AIFMDComplianceDisclosure RequirementsSustainabilityEU Platform for Sustainable Finance Calls for Feedback on a Social Taxonomy
The EU Platform on Sustainable Finance has published its draft reports on the merits and potential design of a social taxonomy.
SustainabilityThe Value Reporting Foundation – The Merger of IIRC and SASB
The International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) has merged to form the Value Reporting Foundation.
SustainabilityVenture CapitalConsultation on Sustainable Corporate Governance Initiative is Completed
On 25 October 2020, the European Commission launched a public consultation on a possible EU-level regulatory initiative dedicated to foster long-term sustainable and responsible corporate behavior.
SustainabilityESA Publishes Joint Supervisory Statement on the Interpretation on Fund Managers’ ESG Disclosure Obligations
From 10 March 2021, fund managers are required to make certain ESG disclosures available on their website and in their pre-contractual disclosures to investors.
AIFMDComplianceDisclosure RequirementsSustainabilityOther updates
EU Commission answers questions on interpretation of SFDR
The EU Commission has published its answers to questions on the interpretation of SFDR. The questions were put forward by the ESAs in September 2022 in order to receive clarification within central aspects of SFDR.
Disclosure RequirementsSustainabilityEU Commission answers questions on interpretation of SFDR
The EU Commission has published its answers to questions on the interpretation of SFDR. The questions were put forward by the ESAs in September 2022 in order to receive clarification within central aspects of SFDR.
Disclosure RequirementsSustainabilityConsultation on the ESAs review of SFDR
The European Supervisory Authorities (EBA, EIOPA and ESMA) have earlier this month published a consultation paper in which they propose amendments to the Commission Delegated Regulation.
Disclosure RequirementsESMARegulatory Technical StandardsSustainabilityNew rules on more flexible fit & proper assessments adopted
On 18 April 2023, the Danish Parliament adopted the proposal to amend the financial regulation presented by the Danish Government, which includes amendments to the rules on fit & proper assessments.
Danish RegulationGovernanceMICA passes vote in the EU Parliament
On 20 April 2023, the EU parliament formally approved the Markets in Crypto Assets Regulation (MiCA), after being informally agreed to back in June 2022.
Crypto-assetsMiCANew rules on severance pay to managers of AIFMs adopted
On 18 April 2023, the Danish Parliament has adopted the proposal to amend the Danish financial regulation, including the Danish Alternative Investment Fund Managers Act.
Danish RegulationDisclosure RequirementsManagement Remuneration