Institutionals The Brussels “Action Plan” at a glance
02.06.2021 • 5 Reading Time
Brussels regulations pave the way forward
The change in sustainability is becoming increasingly noticeable – and is also taking a firm place in the financial and investment industry when it comes to the adoption of new regulations. With the Brussels “Action Plan”, the European Union is setting an important milestone in environmental and climate policy.
For transparent sustainability
Brussels has adopted two binding regulations, the Disclosure Regulation (the Sustainable Finance Disclosure Regulation (SFDR)) and the Taxonomy Regulation . These establish a regulatory framework for sustainable investing in terms of the environment and climate policy. Both regulations apply to both institutional and retail investors.
A decisive aspect here is that these are EU regulations, not EU directives. As regulations, the two sets of rules have direct legal effect in all EU member states. This ensures uniform validity throughout the EU without the need for individual adaptations by national legislators. These regulations take into account the ESG strategy (Environmental, Social, Governance) of the fund and its management. Reviewing sustainability is therefore not only about environmental, but also about efforts dealing with social and economic sustainability.
The central element here is unconditional compliance with transparency obligations. However, this initially only happens at fund level, as the regulations do not provide a standardised ESG rating for individual fund assets, such as real estate. Here, the respective industries themselves are responsible for ensuring the sustainability of individual assets with the help of certifications or rating agencies.
But this is exactly where the challenge lies: although the various rating instruments are now very mature, they are still difficult to compare. Their use is also still voluntary. This means that if an investment fund does not have a sustainability certificate, this says little about the fund’s actual sustainability.
A decisive aspect here is that these are EU regulations, not EU directives. As regulations, the two sets of rules have direct legal effect in all EU member states. This ensures uniform validity throughout the EU without the need for individual adaptations by national legislators. These regulations take into account the ESG strategy (Environmental, Social, Governance) of the fund and its management. Reviewing sustainability is therefore not only about environmental, but also about efforts dealing with social and economic sustainability.
The central element here is unconditional compliance with transparency obligations. However, this initially only happens at fund level, as the regulations do not provide a standardised ESG rating for individual fund assets, such as real estate. Here, the respective industries themselves are responsible for ensuring the sustainability of individual assets with the help of certifications or rating agencies.
But this is exactly where the challenge lies: although the various rating instruments are now very mature, they are still difficult to compare. Their use is also still voluntary. This means that if an investment fund does not have a sustainability certificate, this says little about the fund’s actual sustainability.
ECORE: setting new standards together
In order to close just this gap, the real estate industry has launched the ECORE – ESG Circle of Real Estate initiative. The aim of the initiative is to standardise ESG parameters and data and establish a common standard within the industry.
The standardisation would not only ensure greater comparability within the industry, but also reduce the effort and expense involved in transactions and property management. However, the real estate industry is currently still at the very beginning of its standardisation work,
although it is already further than other sectors such as the infrastructure sector, where there are currently no signs of such efforts. ECORE has now provided the impetus in the real estate industry – and is heading in the right direction.
The standardisation would not only ensure greater comparability within the industry, but also reduce the effort and expense involved in transactions and property management. However, the real estate industry is currently still at the very beginning of its standardisation work,
although it is already further than other sectors such as the infrastructure sector, where there are currently no signs of such efforts. ECORE has now provided the impetus in the real estate industry – and is heading in the right direction.
The two regulations are important and necessary milestones of the European green finance strategy, which we support unconditionally. ESG factors are important criteria for all our special and retail funds, as we believe that this is the only way to ensure that they remain competitive in the long term. We will document this by means of appropriate classifications. Our real estate fund hausInvest, for example, is one of the first open-ended retail real estate funds to meet the transparency obligations for a transparency product referred to in Article 8 under the new Disclosure Regulation.
An important milestone
Of course, there are always new challenges here: both regulations have a strong focus on environmental and climate policy measures. For example, the aspect of sustainable corporate governance is largely ignored in both regulations and the bureaucratic burden on fund management is increased. This can also have an impact on investors, for example in the form of higher fund management fees.
Nevertheless, the new EU regulations represent an important innovation by committing to greater transparency. This also makes it easier for investors to make investment decisions in a more targeted way. And this is particularly important for a more sustainable future. After all, how quickly and consistently sustainability prevails on the financial market and also extends to conventional financial service providers, depends on the general investment behaviour.
In any case, the Brussels Action Plan is a major and important step towards anchoring sustainability even more firmly in the financial and investment world. And with initiatives such as ECORE, this development will hopefully gain even more momentum.
Nevertheless, the new EU regulations represent an important innovation by committing to greater transparency. This also makes it easier for investors to make investment decisions in a more targeted way. And this is particularly important for a more sustainable future. After all, how quickly and consistently sustainability prevails on the financial market and also extends to conventional financial service providers, depends on the general investment behaviour.
In any case, the Brussels Action Plan is a major and important step towards anchoring sustainability even more firmly in the financial and investment world. And with initiatives such as ECORE, this development will hopefully gain even more momentum.