2024 Sustainable Finance Supervisory Priorities: Dutch investors edition
If you’re a Netherlands-based investor, or looking to invest in a sustainable projects in the Netherlands, you’ll want to be up to speed on the latest supervisory priorities for 2024. In this article we’ll discuss the AFM supervisory priorities on sustainability for the coming year.
A quick introduction to Supervisory Authorities
Regulations like the Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy form the backbone for the transition to a sustainable financial system.
These regulations allow supervisory authorities, like the Financial Markets Authority (AFM) in The Netherlands, to supervise Financial Institutions (FIs) such as banks, insurance companies, and pension funds, as well as Financial Markets Participants (FMPs) such as investment banks, asset managers, hedge funds, and the stock exchange.
The AFM is the Dutch delegation of the European Supervisory Authorities (ESAs). The AFM recently published its supervisory priorities for 2024, among the four key pillars in its 2024 activities are Sustainability and Sustainable Finance
As a Financial Market Participant looking to adhere to the EU Taxonomy, we recommend following supervisory authorities closely to keep track of any sustainability requirements that apply to you.
Guidelines on Sustainability Claims
The AFM is overwhelmingly positive towards an ever-increasing number of sustainability claims. However, an increasing number of false or misleading claims over the past years, has led the AFM to announce the need for increasing supervision and regulation. This means that any false or misleading claims will be dealt with and consequences enforced.
If you are looking to make a sustainability claim, here are three key factors you need to consider:
- Ensure the claim is accurate, representative and up to date.
- Ensure the claim is specific and substantiated by sufficient evidence or data.
- Ensure the claim is understandable, appropriate and easy to find.
Want to know more? Read the entire Guidelines on Sustainability Claims.
Keeping sustainability labels thorough and accurate
As investors, partners, and consumer interest in sustainability grows, so does the need for sustainable investments and products. But how can you know whether a product, institution, or service is truly sustainable without becoming a victim of greenwashing or false marketing?
Distinct labels for Sustainable Finance
In late 2023, the AFM positioned itself in the sustainability discussion by providing its improvements to the SFDR. Among the proposals, AFM suggests ensuring minimum adverse impact disclosures for all financial products, regardless of their sustainability characteristics. They also propose introducing understandable sustainable product labels such as “transition,” “sustainable,” and “sustainable impact.” These labels would be backed by specific quality and disclosure requirements to prevent greenwashing.
The AFM’s proposal for distinct sustainability labels is intended to complement, rather than replace, the SFDR framework. Much like the EU Taxonomy, it seeks to add an additional layer of clarity and consumer protection within the existing regulatory framework.
You can find more information on SFDR article 8 and 9 in our recent blog on this topic.
NB: Concrete changes are still being discussed at European Commission level – so check back for updates in the meantime.
The importance of Data Collection and Reporting
According to the AFM, the way sustainable investments are presented, doesn’t align adequately with consumers’ motivations for choosing these products. This makes it a challenge for consumers to identify investments that match their preferences.
Product transparency through accurate data
How does the AFM expect sustainable investments and consumer needs to align? By demanding that FMPs increase the transparency on sustainable investments and the impact they make.
As part of its improvements to the SFDR, the AFM restates how important it is to collect high-quality data and provide reporting when it comes to investments, and reiterates that this topic is not progressing quickly enough.
Monitoring ESG data
Environmental, Social, and Governance (ESG) data, is used to evaluate the impact of a company or investment on sustainability and ethical practices. But are asset managers using this data correctly?
The AFM will follow-up on the exploration (risk control) in relation to the use of ESG data by asset managers. The purpose of this review is to monitor the developments in the area of ESG data in relation to ESG rating offices.
Why is this important? Because ESG rating offices play a large role in decision making within the financial and investment world by providing investors, companies, and other stakeholders with insights into the sustainability and ethical impact of an organisation.
As awareness and demand for sustainable investment options grow, the influence and importance of ESG ratings are expected to rise.
Conclusion:
Sustainability and sustainable finance are one of the four key focus points of the AFM for 2024. Its 2024 agenda explains the priorities regarding its supervisory activities for sustainability.
According to the AFM, investors in the Netherlands should put the following three topics on their 2024 agenda:
- Sustainability claims
- Product demand and transparency
- Data collection and reporting
Any questions?
At Sustainable Capital Group, we understand the complexities of EU regulations in sustainable finance, and our sector experts are here to assist you. For personalised guidance, simply fill out our contact form, and we’ll be in touch with you shortly.
