European investors are set to get better tools to engage with companies whose debt and equity they own, thanks to the European Union's enhanced standards and requirements for evaluating ESG investments.
Investors said that most of them have been more reactive than proactive about engaging when it comes to reaching their sustainability objectives. But a series of upcoming European regulatory amendments is set to help change that by giving them more transformational tools, such as disclosure requirements and bond standards, to deepen their portfolio analysis. Investors said their investment choices also could change because portfolio decisions will become better informed by broader engagement work.
Among these regulatory initiatives, to be available to investors before the end of this year, the European Commission is enhancing:
- Classification, or taxonomy, of business activities to include social standards and definitions of harmful activities.
- A renewed Sustainable Finance Strategy, which aims to accelerate transition to a low-carbon economy through increased private investments in sustainable projects.
- Sustainability programs that underpin the post-pandemic recovery, such as pushing for employment security.
- Requirements on how green bond issuers invest proceeds in order to qualify under the Green Bond Standard.
- Voting requirements on investors under the Shareholder Rights Directive II.
The commission's efforts are set to increase disclosure demands on bond and stock issuers, while helping investors obtain data on corporate activities that were not attainable to them before, sources said.
Ole Buhl, vice president and head of environmental, social and governance at the 889.5 billion Danish kroner ($139.3 billion) ATP, Hilleroed, Denmark, said that without the enhanced data that will come from the new tools, investors would engage by reacting to poor corporate operations on the part of portfolio companies. Mr. Buhl added that the upcoming changes, specifically the taxonomy, will help investors be more specific in engaging with portfolio companies on, for example, why company practices are not in line with their competitors in terms of the green transition of supply chains.