The regulatory momentum on sustainable finance is maintained by the European Commission's new guidelines designed to improve how firms report climate-related information. 

As part of the EC's Sustainable Finance Action plan, and consistent with the Non- Financial Reporting Directive, the EC guidelines provide practical recommendations on reporting the impact of economic activities on the climate, as well as the impact of climate change on businesses. They build on the recent recommendations of the Technical Expert Group (TEG).

Three reports have been published by the EC's TEG on Sustainable Finance, one year since it was set up. The reports include key recommendations on the types of economic activities that can make a real contribution to climate change mitigation or adaptation:

• A classification system (taxonomy) for environmentally-sustainable economic activities, which aims to provide practical guidance for policy makers, industry and investors on how best to support and invest in economic activities that contribute to achieving a climate neutral economy. Although not exhaustive, the report compiles a comprehensive classification system for sustainable activities based on extensively-screened events across a wide range of sectors.
• An EU Green Bond Standard that is largely unchanged from the TEG's interim proposals on clear and comparable criteria for issuing green bonds. In particular, the Standard determines which climate and environmentally-friendly activities should be eligible for funding via an EU green bond. The report makes ten recommendations, three of which relate to the establishment of the Standard, and the others to the ways in which European governments and institutions, market participants and other stakeholders can support and monitor implementation of the Standard.
• Building on best market practices, the proposed Standard encompasses critical elements such as alignment with the taxonomy, mandatory reporting (on use of proceeds/ environmental impact) and verification of the Green Bond Framework. It is expected to boost the green bond market, allowing investors to scale up sustainable and green investment.
• EU climate benchmarks and benchmarks' ESG disclosures - interim recommendations on the methodology and detailed technical guidance on minimum standards for the two types of climate benchmark already adopted by the co-legislators: EU Climate Transition Benchmarks (EU CTBs) and EU Paris-aligned Benchmarks (EU PABs). See the May edition of Asset Management Regulatory Insights for further information.
• The report also sets out minimum disclosure requirements to improve transparency and comparability of information across benchmarks, not only regarding climate-related information but also on a variety of environmental, social and governance (ESG) factors and their alignment with the Paris agreement.
• The aim is to enable investors to adopt a climate-conscious investment strategy and to address the risk of "greenwashing" - making an unsubstantiated or misleading claim about a product, so that it appears more environmentally-friendly.

The EC's guidelines integrate the recommendations of the Financial Stability Board's taskforce on climate-related financial disclosures and build on the TEG's recommendations. They are intended for use by firms that fall under the scope of the Non-Financial Reporting Directive. They include a limited number of recommended climate-related disclosures for each of the five reporting areas under the Directive: business model, policies and due diligence, outcome of policies, principal risks and risk management, and key performance indicators. Firms are expected to follow the recommended disclosures to the extent they are necessary for an understanding of the development, performance, position and impact of their activities.

Firms are expected to disclose information in accordance with widely-accepted reporting standards and frameworks to maximise comparability for stakeholders. To facilitate consistent reporting at EU and global levels, the guidelines refer to a number of recognised reporting frameworks and standards.

The next Commission will decide whether to take the TEG's recommendations forward and, if so, how. In the meantime, the TEG's mandate has been extended until the end of 2019, allowing time for further refinement and development of the proposals.

The European Parliament and Council have still to come to agreement on the Taxonomy Regulation. In the Council in particular, it is understood that there are strong views for and against mandating requirements in Level 1 regulation. Sustainable finance will continue to be a key objective of the EC. However, with many new faces in the Parliament, a very different mix and balance of political groupings, the new Finnish Council Presidency and a new Financial Services Commissioner awaited, the path to adoption of the Regulation is not clear.

Meanwhile, the demands of institutional investors are driving change for asset managers and capital-raising enterprises. A pan- European survey by the Chartered Financial Analysts Institution sums up the challenge: most, but by no means all, institutional investors believe sustainability should be incorporated into portfolios. However most, but not all, investors believe that ESG measures should not be mandated.