Regulation (EU) 2019/2088: new information duties for ‘Green’ insurance‐based investment product

On 9 December 2019 Regulation (EU) 2019/2088 was published, which introduced new sustainability‐related duties to disclosure in the financial services sector.

Such Regulation also applies to insurance undertakings and insurance intermediaries (not on an ancillary basis) that provide insurance advice on insurance investment products (IBIPs) (the “Financial Advisers”), as well as insurance undertakings that make available such IBIPs (the “Financial Market Participants”).

The Regulation does not apply to insurance intermediaries that, irrespective of their legal form, employ fewer than three persons. However, Member States are not prevented from applying the Regulation also to such intermediaries.

Aim of the Regulation is to strengthen the protection of the end investor, by improving the duties to disclosure, on the assumption that, in order to address "the catastrophic and unpredictable consequences of climate change, resource depletion and other sustainability‐related issues", "urgent action is needed to mobilise capital not only through public policies but also by the financial services sector" (recital 8).

Therefore, the Regulation establishes new information duties for Financial Market Participants and Financial Advisers on how sustainability risks - defined as any "environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment", so-called ESG factors - are integrated into the investment decision‐making process and whether principal adverse impacts of investment decisions on sustainability factors are considered.

In particular, the Regulation provides for a series of disclosure requirements, also in the pre‐contractual phase, to the end investor, which supplement those already laid down by the Directive 2016/97 (“IDD”). In summary, Financial Markets Participants and Financial Advisers shall:

• publish and maintain on their website information about their policies on the integration of sustainability risks in their investment decision‐making process and in their insurance advice (art. 3);
• include in their remuneration policies information on how those policies are consistent with the integration of sustainability risks, and shall publish that information on their websites (art. 5);
• include in the pre-contractual information to be provided to the end investor information on how sustainability risks are integrated into their investment decisions and the results of the assessment of the likely impacts of sustainability risks on the returns of the financial products they make available or they advise on (art. 6);
• communicate, for each financial product, whether and, if so, how a financial product considers principal adverse impacts on so called "sustainability factors"; i.e. environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (art. 7);
• publish and maintain on their website as well as in their periodic reports, a description of the environmental or social characteristics or the sustainable investment objective promoted by each financial product, as well as information on the methodologies used to assess, measure and monitor such characteristics (art- 10).

Art. 15 of the Regulation also requires insurance intermediaries to communicate information to the end investor in accordance with art. 23 of IDD (that is at least in a clear and accurate manner, comprehensible to the final investor, and free of charge).

By 30 December 2020, the European Supervisory Authorities (ESAs) - namely the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) – shall also develop draft regulatory technical standards to further specify the content of sustainability information.

The provisions of the Regulation will be directly applicable in all Member States from 10 March 2021.

This article is for information purposes only and is not intended as a professional opinion.

For further information, please contact Anthony Perotto, Guido Foglia, Michele Zucca or Valentina Barba.