Sustainable Finance

Based on the European Commission’s Action Plan on Sustainable Finance and the Green Deal, a legal framework on sustainable finance that falls under the FMA’s scope of competence has been established.

Taxonomy Regulation (TR)

As the central legal act in European regulation, Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 defines whether an economic activity is classified as sustainable in order to be able to determine how environmentally sustainable an investment is.

The legal definition of environmentally sustainable economic activities set out in Article 3 in conjunction with Articles 10 to 18 TR is a central concept, under which an environmentally sustainable economic activity is an economic activity that makes a substantial contribution:

• to one or more of the taxatively listed environmental objectives (Article  9 TR), i.e.
  • to climate change mitigation (Article 9 point a) TR), or
  • to climate change adaptation (Article 9 point b) TR)
• to the sustainable use and protection of water and marine resources (Article 9 point c) TR),
• to the transition to a circular economy (Article 9 point d) TR),
• to pollution prevention and control (Article 9 point e) TR) or
• to the protection and restoration of biodiversity and ecosystems (Article 9 point f) TR),

that makes a substantial contribution pursuant to Articles 10 to 16 TR (special criteria for each environmental objective) that

• does not lead to significant hard to other environmental objectives  (Article 17 TR);
• complies with minimum safeguard standards (Article 18 TR) and
• complies with the technical valuation criteria defined by the European Commission.

Furthermore, the provisions in the Taxonomy Regulation that are particular relevant for financial market participants are those regarding

• Transparency in pre-contractual disclosures and in periodic reports regarding environmentally sustainable investments (Article 5 TR), financial products that promote environmental characteristics (Article 6 TR) and other financial products (Article 7 TR) as well as with regard to
• Transparency of undertakings in non-financial statements (Article 8 TR).

The FMA was named as the competent authority for the enforcement of disclosure obligations in accordance with Articles 5 to 7 of the Taxonomy Regulation as part of the amendments to laws published in Federal Law Gazette I No. 36/2022.

Sustainable Finance Disclosure Regulation (SFDR)

Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector sets out harmonised rules for financial market participants and financial advisers on transparency in relation to disclosure about the integration of sustainability risks and consideration of adverse sustainability impacts in their processes and in providing information about the sustainability of financial products. It has applied since 10.03.2021. The following disclosure obligations arise from the SFDR:

• Website disclosure:
  • Transparency of sustainability risk policies pursuant to Article 3 SFDR
  • Transparency of adverse sustainability impacts at entity level pursuant to Article 4 SFDR
  • Transparency of remuneration policies in relation to the integration of sustainability risks pursuant to Article 5 SFDR
• Disclosures in pre-contractual documents:
  • Transparency of the integration of sustainability risks pursuant to Article 6 SFDR
  • Transparency of adverse sustainability impacts at financial product level pursuant to Article 7 SFDR

The required disclosures in pre-contractual documents vary depending on the specific rules depending pursuant to Article 8 SFDR whether it is a financial product that promotes environmental or social characteristics (“light green” products), or whether it is a financial product that has sustainable investment as an objective (“dark green” products).

• Disclosures in periodic reports.

Regulatory Technical Standards have been published in a delegated Regulation to the SFDR (CDR (EU) 2022/1288) that specify the details regarding the content, methodologies and presentation of sustainability-related information. The delegated Regulation also contains reporting templates for Principal Adverse Impacts (PAI) and reporting in accordance with Articles 8 and 9 as an Annex. 

The FMA was named as the competent authority for the enforcement of disclosure obligations in accordance with the Disclosure Regulation as part of the amendments to laws published in Federal Law Gazette I No. 36/2022.

Amendment of the Benchmark Regulation (BR)

Regulation (EU) 2019/2089 amending Regulation (EU) 2016/1011 (Benchmark Regulation) as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks, which was published in the EU’s Official Journal on 09.12.2019, and defines two new categories of sustainability benchmarks:

• EU Climate Transition Benchmarks, and
• EU Paris-aligned Benchmarks.

Benchmark administrators have been allowed to provide these new benchmarks on a voluntary basis since 30.04.2020. These new categories of benchmarks are intended to force investments in sustainability projects and assets, since the underlying entities in the benchmarks are required to follow an annual decarbonisation path. Based on the work of the Technical Expert Group for Sustainable Finance, the European Commission defined Minimum Standards for the Design of the Benchmark Methodology in Commission Delegated Regulation (EU) 2020/1818, published on 17.07.2020.

Regulation (EU) 2019/2089 has also stipulated disclosure obligations for all benchmark administrators with regard to ESG criteria. As a rule all administrators have been obliged since 30.04.2020 to issue disclosures for all their benchmarks in the methodology as well as in the benchmark statement about whether and to what extent ESG criteria are taken into account when calculating the benchmark. These disclosure obligations were further clarified in Commission Delegated Legal Acts (Delegated Regulation (EU) 2020/1816 and Delegated Regulation (EU) 2020/1817), which were also published on 17.07.2020.

Capital Requirements Regulation (CRR3) / Capital Requirements Directive (CRD6)

Following the adoption of the final Basel III reform package in response to the financial crisis in December 2017, in December 2023 the European Commission adopted the final Banking Package 2021 to adequately address pandemic, geopolitical and climate-related challenges and their impact on financial market stability.

In December 2023, the European Council and the European Parliament adopted the corresponding legal acts for amending the CRD (Directive 20213/36/EU) and the CRR (Regulation (EU) No 575/2013) that enter into force on 1 January 2025.

The new requirements about “Environmental, Social and Governance Risks” (ESG risks) constitute a major pillar of the Banking Package.

The strengthening of the framework for the requirements for the management of institutions in relation to Environmental, Social and Governance Risks (ESG risks) cover the following aspects among others:

• harmonised definitions of ESG Risks and further terms
• Introduction of prudential transition plans pursuant to Article 76 (2) CRD
• Integration of ESG risks into the annual “Supervisory Review and Evaluation Process (SREP)”, conferring new supervisory powers for limiting ESG risks.
• ESG reporting and disclosure requirements are extended to all EU credit institutions; taking into consideration the principle of proportionality for smaller credit institutions

Based on this, the European Banking Authority (EBA) is now working on the implementation of the mandates that were conferred upon it in the Banking Package in relation to ESG risks. See the EBA Roadmap for a detailed timeline.

Integration of Sustainability Aspects in the legal framework of Solvency II, IDD, MiFID II, AIFMD, UCITS-D

Amendments to delegated legal acts in securities and insurance supervision law (Solvency II, IDD, MiFID II, AIFMD, UCITS-D) were published on 21.04.2021. They relate to taking into account of sustainability preferences in investment/insurance advice as well as sustainability factors in product governance as well as the explicit integration for taking into account sustainability risks in securities and investment supervision law (e.g. organisational requirements, risk management, conflicts of interest). Their respective entry into force varies depending on the respective legal act, but has generally been the case since August 2022.

Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) was published in the Official Journal of the European Union on 14.12.2022. It substantially modifies the existing provisions on sustainability reporting. First and foremost, the future Article 19a of the Financial Statements Directive as amended by the CSRD broadens its scope. Whereas only large undertakings that were public-interest entities with an average of more than 500 employees were previously required to submit non-financial statements, this requirement will be extended in the future to cover all large entities, irrespective of whether or not they are exchange-listed, as well as exchange-listed small and medium-sized undertakings, although some simplifications are intended for the latter. Micro-undertakings remain excluded from this requirement. Another significant regulatory aspect is the introduction of binding standards for the sustainability reporting in the future Article 29b of the Financial Statements Directive as amended by the CSRD. The CSRD also stipulates that mandatory presentation of the sustainability report in the management report – there is no longer an alternative option for a separate report. Furthermore, the obligation is also introduced to have the sustainability report reviewed by an external source.

The European Financial Reporting Advisory Group (EFRAG) is responsible for the technical drafting of the European Sustainability Reporting Standards (ESRS). Pursuant to Article 7 CSRD, the CSRD shall first apply to financial years that begin on/after 01.01.2024 – however applicability will also occur on a gradual basis depending on the type of undertaking. As the legal act in question is an EU Directive, prior to the CSRD becoming applicable for the first time, Member States will need to issue transposing legal acts under national law (national transposing legislation), which is still outstanding.

European Green Bond Standard (EuGB-R)

Regulation (EU) 2023/2631 (referred to as the “European Green Bond Regulation” or the “European Green Bond Standard”) has been in force since the end of 2023 and will be applicable from 21.12.2024. Issuers may voluntarily subject themselves to the EuGB-R within the course of a issuance of green bonds and will enjoy the right to label their bond as a “European Green Bond” or “Europäische Grüne Anleihe”.

Since the private economy’s green bonds initiatives that have existed to date do not stipulate a harmonised definition of what environmentally sustainable economic activities are, it is frequently unclear for investors for which bonds the proceeds are used in accordance with the environmental objectives of the Paris Agreement or contribute to these objectives.

For the first time, the EuGB-R contains a definition for “green bonds”, since the proceeds from the issuance of such bonds are required to be invested in accordance with the Taxonomy Regulation (see above). In so doing, investor protection is strengthened, and Greenwashing prevented. This is primarily guaranteed by means of comprehensive disclosure obligations, reviewed by the supervisor and by independent external reviewers, who are supervised by ESMA. Every issuance of a European Green Bond requires an approved capital market prospectus. Information documents, allocation reports and impact reports ensure comprehensive access rights for investors cross the entire term of the bond.

The observance of these disclosure obligations in Austria is subject to supervision by the FMA.

Since 2021, sustainability has been one of the FMA’s dedicated priority for supervision and inspections. In addition to a structured dialogue with all stakeholders on sustainability issues, two specific thematic aspects of the FMA’s priorities have been able to be highlighted: on the one hand the appropriate integration of sustainability risks into strategy, governance and risk management of supervised entities (with a focus on resilience), and on the other hand observance of the necessary disclosures regarding sustainable financial products, in order to reduce risks of greenwashing (with a focus on collection investor protection). Further details about the FMA’s priority for supervision regarding sustainability can be found in the FMA publication “Facts and Figures, Trends and Strategies“, published annually.

FMA Guide for Managing Sustainability Risks

In July 2020, the FMA published a cross-sector FMA Guide for Managing Sustainability Risks. The FMA Guide should generally serve as guidance for supervised entities in the consideration of sustainability risks within the scope of their business activities and in particular should prepare them for regulatory developments.

In 2022, the FMA conducted a cross-sector survey about the extent to which the integration of sustainability risks in strategy, governance and risk management has already been implemented across the Austrian financial market (implementation check). The FMA Guide served as a reference for this check. In addition, challenges relating to sustainability-related disclosure requirements were also evaluated. The survey was also used to identify any potential need to develop the FMA Guide further, directly involving entities supervised by the FMA in the process.

A report (available in German only) on checking the implementation of the FMA Guide for Managing Sustainability Risks in the Austrian financial market was published on 18.01.2023.

Bericht Implementierungscheck Nachhaltigkeit (Format: pdf, Size: 484,4 KB, Language: German)

In 2024, the FMA is revising the FMA Guide for Managing Sustainability Risks to adequately reflect the current and forthcoming exceptionally dynamic and multi-layered regulatory developments in relation to sustainable finance.