Sustainability Regulation

Sustainability regulation increasingly overlays our member firms’ individual approaches to responsible investment and ESG.

Policymakers are focussing on disclosure and transparency requirements in an effort to prevent ‘greenwashing’ and ensure investors receive reliable and comparable ESG information they can factor into decision-making. To the extent these new frameworks are well-thought through, proportionate and aimed at material ESG issues, they should be welcomed by PE/VC firms seeking a degree of standardisation on sustainability reporting. They can also help firms to evolve their internal thinking on and approaches to factoring environmental and social challenges into their investment processes.

The BVCA is engaging on a number of areas, including the following:
 

UK – TCFD:

Task force on climate-related financial disclosures (TCFD) will be mandatory across large sectors of the UK economy by 2023.

• Scope: Private companies – UK registered companies which have more than 500 employees and a turnover of more than £500m. Asset managers – larger firms with AUM greater than £5 billion.
• Timing: Private companies – Accounting periods starting on or after 6 April 2022. Asset managers – By 30 June 2024 for first entity level disclosures and public product/portfolio disclosures (if relevant). From 1 July 2024 for first on demand product/portfolio disclosures (if relevant).
• Impact: Companies and asset managers will be required to report under four headings: governance, strategy, risk management, metrics & targets. The requirements for asset managers apply at both the entity (firm) level and at the product, fund or portfolio level.

UK – SDR:

The Sustainability Disclosure Requirements regime came out of the government’s green finance roadmap which set out to align financial systems with the UK’s net zero strategy.

• Scope: UK registered companies including relevant financial services firms (banks, insurance companies). The FCA published a discussion paper on SDR and investment labels in late 2021. Final definitions to be confirmed.
• Timing: FCA and BEIS consultations expected in H1 2022. Implementation 2-3 years after.
• Impact: Private companies - Annual reports disclosures in line with standards set by the International Sustainability Standards Board. Also report on the extent to which activities align with UK green taxonomy. Asset managers – Disclosures on how firms take sustainability into account and the introduction of a new sustainable investment product labelling regime.

EU – SFDR:

The EU’s framework regulation on sustainability -related disclosures in the financial services sector.

• Scope: EU-regulated AIFMs and MiFID firms, and non-EU firms marketing funds to EU investors.
• Timing: 10 March 2021
• Impact: requires affected firms to make sustainability disclosures on their websites, in pre-contractual information and in periodic reports to investors.