The European Parliament and EU member states have today reached a political agreement on disclosure requirements related to sustainable investments and sustainability risks.

The new regulations, welcomed by the European Commission, will force asset managers, insurers and pension funds to disclose environmental risks and integrate environmental, social or governance (ESG) risks and opportunities in their processes.

First proposed by the commission in May 2018 as part of the Sustainable Finance Action Plan and the Capital Markets Union, the new regulations are built around three main pillars.

The first pillar is elimination of so-called greenwashing, which the commission describes as “unsubstantiated or misleading claims about sustainability characteristics and benefits of an investment product”, and an increase of market awareness on sustainability matters.

The second pillar is regulatory neutrality. The rules introduce a disclosure toolbox to be applied in the same manner by different financial market operators. The three European Supervisory Authorities (ESAs), and in particular the Joint Committee of the Authorities, will ensure further convergence and harmonisation of disclosures in all the sectors concerned.

The third pillar is a levelled playing field as the regulation covers investment funds, insurance based investment products, private and occupational pensions, individual portfolio management and both insurance and investment advice.

The rules are part of EU efforts to connect finance with needs of the real economy under the sustainable development and carbon neutrality agenda. The regulations also support the 2012 United Nations' Sustainable Development Goals and the 2016 Paris Climate Agreement targets.

European Commission vice-president responsible for the euro and social dialogue Valdis Dombrovskis, also in charge of financial stability, financial services and Capital Markets Union, said: "The EU is fully committed to implementing the Paris agreement and leading the global fight against climate change.

“Thanks to today's agreement, we are making sure that the financial system works towards this goal. The new rules on disclosures will enable investors and citizens to make more informed choices so that their money is used more responsibly and supports sustainability."

European Commission Vice-President Jyrki Katainen, who is responsible for jobs, growth, investment and competitiveness, said: "The Paris Agreement is a massive investment opportunity. We need to seize it. Today's agreement will help Europe's financial sector position itself as a leading global destination for investments in green technologies."

Moreover, the regulations sets uniform rules on how those financial market participants should inform investors about their compliance with the integration of ESG risks and opportunities, addressing information asymmetries on sustainability issues between end-investors and financial market participants or financial advisors.

The commission said: “The availability of information is crucial to the integration of risks related to the impact of ESG events on the value of investments, for example in assets located in flood-prone areas. The regulation also requires the disclosure of adverse impact on ESG matters, such as in assets that pollute water or devastate bio-diversity, to ensure the sustainability of investments.”

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