5.4.3 Transparency requirements

Companies have to be increasingly transparent on the sustainability of their products and services, as well as on their own sustainability achievements. This is also true for financial institutions.

Listed financial institutions, for example, are bound to the Dutch Corporate Governance Code. In 2016 the Code was revised, introducing long-term value creation as a leading principle. Corporate social responsibility and sustainability can be regarded as essential elements in de process of long-term value creation. Listed financial companies are required to report on their compliance with the Code, according to the comply or explain-principle. This means that they have to report on their sustainability achievements as part of their commitment to realize long-term value creation.

As from 2017, banks and insurance companies with more than 500 employees are required to include in their management report a non-financial statement, containing information on environmental, social and governance (ESG) factors.1 The statement must include a description of the policies pursued by the institution in relation to ESG-matters, the outcome of those policies, the principal risks related to ESG-matters and how the institution manages these risks. Where the institution does not pursue policies in relation to one or more of the ESG-matters, the non-financial statement shall provide a clear and reasoned explanation for not doing so (comply or explain).

In the Netherlands, AFM is the competent authority responsible for ensuring compliance with these requirements. AFM is also the competent authority supervising the PRIIPS-Regulation (the Regulation on key information documents on Packaged Retail and Insurance-Based Investment Products). The marketing of funds that are aimed at investing in environmental or social causes are subject to additional investor information rules.2

The above mentioned regulation only applies to a certain number of Dutch financial products and institutions. For example, no more than 30 banks and insurance companies fall within the scope of the above mentioned Decision regarding disclosure of non-financial and diversity information. Even though many institutions have chosen to voluntarily apply the recommendations of the FSB Task Force on Climate-Related Financial Disclosures,3 AFM underlines the need to introduce mandatory international accounting standards integrating non-financial information in the annual financial statements.4

More transparency rules are, in fact, on their way (see paragraph 5.2.2). In May 2018 the Commission adopted a proposal for a regulation on disclosures relating to sustainable investments and sustainability risks. This regulation will introduce disclosure obligations on how institutional investors and asset managers integrate ESG-factors in their risk processes. This proposal may, in the future, be followed by the introduction of EU- standards and labels for green financial products and specifications of the prospectus for green bond issuances (according to the Action Plan).

In addition, the EC-proposal regarding the transparency of the methodologies used for low carbon indices or other ESG benchmarks as well as the call for credit rating agencies to better integrate sustainability and long-term risks into credit ratings and market research, as mentioned in paragraph 5.2.2, may well result in EU-regulation that will help financial institutions to make better informed and effectively “green” investment decisions.