Faced with “dense” and complex information, the AMF in France is encouraging financial institutions to continue their efforts to “improve the transparency of their Taxonomy reporting.”
In a report covering the first alignment reporting of seven French banks and insurers, the Autorité des Marchés Financiers presents an overview of the “practices observed and the obligations arising” from the EU Taxonomy Regulation. It also looks at the main difficulties “encountered by these financial institutions.”
This year, financial institutions were required under the EU Taxonomy Regulation to disclose information “on the alignment of their activities or exposures with the Taxonomy’s two climate objectives, namely climate change mitigation and climate change adaptation.”
These disclosures cover a number of indicators designed to “enable investors to assess and compare the proportion of sustainable exposures and/or activities in the balance sheets of banks and insurers.”
As part of its guidelines for the 2023-2027 period, the Autorité des Marchés Financiers (AMF) is committed to promoting more sustainable finance, both by helping to define a “clear and consistent European and international regulatory framework, and by supporting market participants in the effective implementation of new legislation.”
With this in mind, the AMF has reviewed the disclosures made and the main difficulties encountered by seven French banks and insurers in “complying fully with their new obligations under the Taxonomy Regulation.”
In its study, it presents the main lessons learned from this review, with “a view to enabling players to improve their transparency practices.”
Taking into account both the density and the complexity of the information to be provided, the AMF stresses the “importance of providing useful information to investors,” including by:
- paying particular attention to the transparency of the information provided: the AMF would like to highlight the efforts made by financial market participants when presenting information and their pedagogic approach. However, due to the technical nature of the Taxonomy Regulation, the volume of data produced and the format of certain regulatory templates, the disclosures remain difficult to understand for non-experts. Nevertheless, the AMF calls on market participants to continue their efforts in terms of transparency by clearly indicating the assumptions made, as well as any difficulties encountered, and in particular the reasons for not disclosing specific indicators;
- ensuring greater consistency between Taxonomy reporting, the environmental, social and governance strategy and the other components of the non-financial statement (NFS): to date, Taxonomy disclosures are made on an ad hoc basis in the annual report, without any clear connection with the rest of the ESG information provided by financial institutions, and specifically with their ESG strategy. Greater overall consistency would make this reporting more relevant and useful for investors;
- increasing data availability and reliability: This is a major challenge for the financial sector, which remains heavily dependent on the data published by its counterparties. The lack of data, as well as the structure of the regulatory ratios themselves, partly explains their low levels as disclosed in this first alignment reporting. This problem can only be solved in the medium term, and will undoubtedly require significant developments in information systems and organisational processes on the part of financial institutions and their counterparties. It would certainly be advisable to simplify the process in order to make the information more easily understandable.
The objective is to encourage sustainable investment by “identifying environmentally sustainable economic activities.”
To be considered sustainable, an economic activity must fall within the scope of the Taxonomy (which is being gradually widened) and, in accordance with the environmental objectives set, “comply with a number of sustainability criteria established scientifically or in line with existing standards. This is known as Taxonomy alignment.”
The Taxonomy’s six environmental objectives:
- Climate change mitigation;
- Climate change adaptation;
- Sustainable use and protection of water and marine resources;
- Transition to a circular economy;
- Pollution prevention and control;
- Protection and restoration of biodiversity and ecosystems.
As covered, the AMF is an independent public authority responsible for ensuring that savings invested in financial products are “protected and that investors are provided with adequate information.”
The AMF also supervises the “orderly operations of markets.”