Within each country there is generally a complex structure of legislation organising human activity. Organisations like the OECD and UN have a rich set of rules and guidelines, but no possibility of commensurate sanctions.
In 2021, 70 years have passed since the signing of the Treaty of Paris. Since then, the building of a common Europe has evolved rapidly, with a steadily increasing number of member countries (exception noted) and deeper integration. Through this process, the EU has developed unique expertise in designing laws – regulations and directives – that apply to many countries of an arguably widely different nature. And the economic weight of the region dictates that actors in other countries must also comply with these rules.
To be a bit more specific: In many fields, the EU has developed as an international legislator.
This applies not least to the financial industry, where e.g. the MiFID II (Markets in Financial Instruments Directive) also influences financial institutions in North America. Europe is too big to let one's company be cut off from doing business here.
This makes it all the more interesting to see what will come out of the growing ambitions of using the financial industry as a means of promoting sustainability. And here, considering the complexity, things have developed at an impressive speed. In 2018, the European Commission released an action plan for financing sustainable growth. In 2020, the Taxonomy Regulation entered into force, providing standard definitions to companies, investors and policymakers on which economic activities can be considered environmentally sustainable. This regulation ensures that everyone in the business speaks the same language, or more specifically that clear requirements apply to claims of sustainability.
“This makes it all the more interesting to see what will come out of the growing ambitions of using the financial industry as a means of promoting sustainability. ”
This year the EU Sustainable Finance Disclosure Regulation (SFDR) came into force. This regulation concerns the disclosure of information on sustainability in financial products. The goal is to direct capital flows towards more sustainable investments with lower climate emissions. The regulation has already entered into force in the EU and it is on its way into Norwegian legislation through a draft that has been subject to consultation. In any case, all Norwegian actors must already align themselves.
The new rules intend to make financial products more transparent, to provide a clearer declaration of contents. Investors should be able to see how climate change and other environmental challenges affect the financial risk, while relatively detailed rules will make greenwashing difficult.
Of the greatest practical significance is perhaps the division into different types of funds or financial products:
- Article 9 funds. Let's call them dark green. These are funds whose very purpose is sustainable investments.
- Article 8 funds can then be described as light green. They must promote environmental or social characteristics, but do not necessarily have this as a stated purpose.
- Article 6 funds do not take such considerations into account. This must then be made clear, a bit like a financial version of the warnings on cigarette packs.
Presently we have one fund that is classified under article 9: Pareto ESG Global Corporate Bond, which also holds the Nordic Swan Ecolabel and has its own dedicated ESG analyst. With one exception the remainder of our funds are now article 8 funds and we sharpen our ESG focus in all of them – irrespective of their classification. You will find more information on this in the relevant fund documents in due course.