Dark green products in the context of a green finance are the products that invest in an "economic activity that contributes to an environmental objective".
The terminology refers to:
- Article 5 of the Taxonomy Regulation and
- Article 9(6) SFDR.
Recital 15 of the Commission Delegated Regulation of 6 April 2022 confirms that dark green products can make sustainable investments only, however, such products can to some extent make other investments where they are required to do so under sector specific rules.
"For the avoidance of doubt, as stated by the European Commission in its SFDR Q&A from July 20216, financial products that have sustainable investment as an objective should only make sustainable investments. However, disclosures are still required on the amount and purpose of any remaining assets to demonstrate how those do not prevent the financial product from attaining its sustainable investment objective" (ESAs Clarifications of 2 June 2022 on the ESAs’ draft RTS under SFDR, JC 2022 23).
Taxonomy Regulation, Article 5
Transparency of environmentally sustainable investments in pre-contractual disclosures and in periodic reports
Where a financial product as referred to in Article 9(1), (2) or (3) of Regulation (EU) 2019/2088 invests in an economic activity that contributes to an environmental objective within the meaning of point (17) of Article 2 of that Regulation, the information to be disclosed in accordance with Articles 6(3) and 11(2) of that Regulation shall include the following: (a) the information on the environmental objective or environmental objectives set out in Article 9 of this Regulation to which the investment underlying the financial product contributes; and (b) a description of how and to what extent the investments underlying the financial product are in economic activities that qualify as environmentally sustainable under Article 3 of this Regulation. The description referred to in point (b) of the first subparagraph of this Article shall specify the proportion of investments in environmentally sustainable economic activities selected for the financial product, including details on the proportions of enabling and transitional activities referred to in Article 16 and Article 10(2), respectively, as a percentage of all investments selected for the financial product.
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SFDR, Article 9 |
“Dark green” products are distinctive in the investors' perception from products named “light green”. This is reasonable as the said categories are subject to different sets of disclosure rules on the pre-contractual information.
Explanatory Memorandum to Commission Delegated Regulation of 6 April 2022 supplementing Regulation (EU) 2019/2088 of the European Parliament and of the Council with regard to regulatory technical standards specifying the details of the content and presentation of the information in relation to the principle of ‘do no significant harm’, specifying the content, methodologies and presentation of information in relation to sustainability indicators and adverse sustainability impacts, and the content and presentation of the information in relation to the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports adopted by the European Commission reads:
“Financial products that claim to pursue the objective of ‘sustainable investments’, with no significant harm, as defined in Article 2, point (17), of the Sustainable Finance Disclosures Regulation must be accompanied by the disclosures provided for in Article 9 of that Regulation".
The specific rules for the above disclosures for dark green products are described in the ESA’s Final report of 22 October 2021 on taxonomy-related product disclosure RTS with regard to the content and presentation of disclosures pursuant to Article 8(4), 9(6) and 11(5) of Regulation (EU) 2019/2088, JC 2021 50.
The draft RTS aim to:
- provide disclosures to end investors regarding the investments of financial products in environmentally sustainable economic activities, providing them with comparable information to make informed investment choices; and
- establish a single rulebook for sustainability disclosures under the SFDR and the Taxonomy Regulation.
The set of rules of particular importance in this regard is the draft Commission Delegated Regulation amending the regulatory technical standards laid down in Commission Delegated Regulation (EU) 2021/XXX as regards the content and presentation of information in relation to environmentally sustainable financial product disclosures in precontractual documents and periodic reports.
According to the Updated Joint ESA Supervisory Statement of 24 March 2022 on the application of the Sustainable Finance Disclosure Regulation, JC 2022 12 these drafts can (and, of necessity, must) be applied before final rules are promulgated.
Commission Delegated Regulation of April 2022 supplementing Regulation (EU) 2019/2088 of the European Parliament and of the Council with regard to regulatory technical standards specifying the details of the content and presentation of the information in relation to the principle of ‘do no significant harm’, specifying the content, methodologies and presentation of information in relation to sustainability indicators and adverse sustainability impacts, and the content and presentation of the information in relation to the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports, Recital 15
While financial products that have sustainable investment as their objective should make sustainable investments only, such products can to some extent make other investments where they are required to do so under sector specific rules. It is therefore appropriate to require disclosures on the amount and purpose of any other investments so that it can be verified whether those investments do not prevent the financial product from attaining its sustainable investment objective.