Italy’s financial regulator CONSOB has called for “clear, concise and understandable” sustainable finance disclosures and said it will continue to exercise “careful supervision” on the topic to ensure full compliance.
The call has been made owing to the “huge” levels of EU sustainable finance regulation developed in recent years, the regulator said.
It added that this evolving sustainable finance framework is characterised by “significant novel and complex aspects”, which is why it has started a targeted supervisory action aimed at monitoring the methods of implementation across the market.
This work is being carried out in co-ordination with EU watchdog ESMA as part of its common supervisory action for 2024.
CONSOB flagged the EU’s Sustainable Finance Disclosure Regulation (SFDR), taxonomy, Corporate Sustainability Reporting Directive (CSRD), regulation on ESG ratings and Mifid II as evolving areas in sustainable finance regulation.
It also noted the European Commission’s mandate to the three European Supervisory Authorities (ESAs) on greenwashing risks, which could lead to further supervisory and enforcement approaches. The three regulators submitted their final greenwashing reports last month.
The Italian regulator has published a list of positive and negative market practices in SFDR compliance. It said this would support financial institutions with adopting more “consistent and evolved” methods, with a view to improve compliance with the regulation.
SFDR supervision
Bad practices in SFDR disclosures identified by CONSOB included providing excessive amounts of information which made it challenging to identify the key elements of the policies adopted to integrate sustainability risks.
On the flipside, the regulator also noted examples of disclosure that did not explain the reasons behind how the adopted policy allowed for the integration of sustainability risk into investment decisions.
It also cited examples of actors referencing exclusions without clarifying the logic and reasons behind these, and mentions of client “sustainability preferences” without explicitly explaining the link between this and the sustainability risks being addressed.
Staying on the client side, CONSOB identified issues with the questionnaires conducted to assess client sustainability preferences, flagging problems with overly technical language, a lack of granularity and clarity in the surveys, and an absence of detailed sustainability preferences.
On Principal Adverse Impact (PAI) statements, the regulator noted some firms did not adequately explain why they had failed to take these indicators into account, citing only vague reasons like lack of clarity in the regulatory framework and insufficient data.
Others provided PAI statements with an “excessively general” approach which failed to properly explain actions taken and planned to avoid or mitigate PAIs.
Lack of clarity on the policies for identifying and prioritising PAIs, and lack of explanations for not adopting engagement policies were also flagged as problems.
The regulator also noted issues with finding SFDR disclosures on company websites, and confusing disclosure statements which mixed sustainability risks, factors and PAI disclosures.
Good practices observed were statements presented in a brief and clear way, containing “simple and concise” explanations of the adopted approaches to integrate sustainability risks.
These also included practical examples of concrete events that represent “sustainability risks” which explained why these can affect the value of the investments.
Several examples of good practice were also observed with consistency between remuneration policies and sustainability risk information, where policies were clearly presented on company websites.
The step up in supervision and enforcement in Italy follows the French financial regulator’s warning it will ramp up SFDR enforcement for market participants that fail to heed compliance notices. This came after an AMF inspection of 25 Article 8 and 9 funds across five asset managers which found 60 percent were in breach of the regulation.
Separately, the Danish financial watchdog issued orders against managers Jyske Invest and BI Management, alleging shortcomings in the processes for including sustainability risks in investment decisions and ongoing risk management.
The FSA also published statements noting shortcomings after inspecting the Article 8 products of AP Pension, Danica Pension and PFA Pension.