EU Disclosure Regulation – a challenge not only for capital investments


published on 20th May 2021


On 10 March 2021, the EU Regulation „on sustainability-related disclosures in the financial services sector” (Disclosure Regulation) came into force. The implementation of the requirements will keep the financial services sector busy for a long time.


According to estimates by the EU Commission, the member states of the European Union alone will have to invest an additional 180 billion euros annually to implement the necessary measures to combat the causes and consequences of climate change. Capital will also have to be raised from private and institutional investors to finance the investments. The EU Action Plan for Sustainable Finance, already launched in 2018, is intended to significantly contribute to achieving the ambitious goals set during the climate conference in Paris in 2015 (UN 2030 Agenda for Sustainable Development) and to redirect capital towards sustainable investments.


Harmonized classification systems (taxonomy) and promoting transparency of these investments (disclosure, corporate governance) as well as the anchoring of sustainability in financial supervisory legislation (risk management, rating, capital requirements) should make sustainable investments even more attractive to investors.

Accordingly, the primary objective of the EU Disclosure Regulation is to ensure a uniform level of transparency regarding the availability and quality of sustainable investments. The investor must be able to see clearly whether or not a product is sustainable or integrates sustainability criteria. Consequently, there is no obligation to design all products sustainably within the meaning of the Disclosure Regulation in the future.

In future, financial advisers providing investment advice will have to ask investors on their own initiative whether they would like to integrate sustainability criteria into their capital investment (the so-called ESG preference query). Accordingly, investment providers and financial advisers should decide how they want to strategically approach the topic of ESG, because not least, social change will also have an impact on demand for sustainable financial products. Having appropriate products in the portfolio can therefore prove useful.

The Disclosure Regulation distinguishes, on the one hand, between financial market participants (especially asset management companies) and financial advisers (especially banks and investment firms) and, on the other hand, between company-related and product-related information.

Furthermore, the EU Regulation distinguishes between the following three information areas:

Handling sustainability risks: Providers or advisers are required to disclose their policies for handling sustainability risks in investment/advisory processes. If they consider sustainability risks to be irrelevant, they must give clear and concise reasons for this.

Principal Adverse Impacts (PAI): Here, it is important to demonstrate whether principal adverse impacts of investment decisions on sustainability factors have been considered or, if this is not the case, to state the reasons. In particular, advisers are required to disclose fully transparent information on how they proceed when selecting investment products, as well as whether and how they integrate sustainability impacts at the product level.

Product categories: Pre-contractual disclosures must provide information on the type of investment product – the products are often named according to the corresponding article of the Regulation. A distinction is made between non-sustainable financial products (Article 6), the so-called ESG strategy products that promote environmental or social characteristics (Article 8), and the so-called impact products whose objective is concrete sustainable development/impact (Article 9). The respective classification entails corresponding follow-up obligations. As regards pre-contractual disclosures (e.g. sales prospectus) it must be demonstrated how the product fulfils the ESG characteristics or the Sustainable Development Goals (SDGs), or whether it does not fall into either category.

This last requirement is precisely what will make the impacts of the Disclosure Regulation be felt also in other sectors beyond the financial services sector. This is because the focus is on investment products as such: whether they are ultimately sustainable or not, and if so, to what extent. Thus, collecting the corresponding data on the investment asset (e.g. renewable energy power plants, real estate) as well as those on their operators and users will involve a great deal of effort. The intended level of transparency can only be achieved if the relevant sustainability aspects (environmental, social and governance) are observed and their fulfilment is demonstrated. The operational implementation of the requirements of the Disclosure Regulation will only partly be the task of direct users of the Regulation; moreover, in practice it will mostly be the responsibility of the service providers at the level of the respective asset.

The first relevant implementation of the requirements by the EU took place on 10/03/2021, further requirements will be introduced and/or specified in more detail at the end of this year or at the beginning of next year. The so-called Level 2 measures, which regulate the actual details but have not been finalised yet, are most crucial in this regard.


The EU Disclosure Regulation – not least in combination with the Taxonomy Regulation – will continue to keep providers, managers and intermediaries of capital investments as well as providers, sellers and operators of sustainable investment assets quite busy in the future.



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