an overview of NA regulation.

The NA Action Plan for Financing Sustainable Growth (the “NA Action Plan”) aims to reorient capital flows towards a more sustainable economy, foster greater transparency and long-termism in financial and economic activities, and manage risks arising from climate change.

There are three key NA regulations stemming from the NA Action Plan that impact our business:

NA Taxonomy: do companies contribute to an environmentally sustainable objective through their activities?
SFDR (Sustainable Finance Disclosure Regulation): how are sustainability related risks and considerations taken into account and met at both product and firm-level?
MIFID II ESG amendments on integration of sustainability risks and sustainability factors in the suitability assessment (“MIFID II ESG amendments”): do investors have sustainability preferences? and how to assess them?

The table below provides a brief introduction to each area.

Regulation	Objective	Regulation in a nutshell	Interaction between regulations
NA Taxonomy	Establishes a framework for “environmentally sustainable” economic activities in the NA	Provides businesses with a common language to identify whether or not a given economic activity should be considered environmentally sustainable: Must substantially contribute to one of the six environmental objectives Not significantly harm any of the other environmental objectives; and Comply with minimum social safeguards	NA Taxonomy alignment is one of the parameters to be disclosed and reported on under the SFDR if the fund commits to make sustainable investments.
SFDR	Seeks to enhance transparency and comparability on sustainability disclosure and reporting obligations towards end-investors	Introduces key requirements: Classification of funds as Article 6/8/9 Definition of “sustainable investment” Mandatory firm level disclosures on consideration of sustainability risks and principal adverse impact Mandatory product level disclosures for Article 8 and 9 funds	Product level pre-contractual disclosures and periodic reporting will include, among other information on: % of “sustainable investments” % of NA Taxonomy aligned investments Sustainability indicators, including principal adverse impact indicators considered by the fund
MIFID II ESG amendments	Introduces consideration of sustainability preferences for end-investors	End-investors as part of the suitability assessment will need to declare if they have sustainability preferences based on the options proposed by the regulator: Minimum % of sustainable investment under the SFDR Minimum % of NA Taxonomy aligned investment Consideration of principal adverse impact indicators proposed by the SFDR	The 3 possible sustainable preferences are directly linked to key concepts set out in SFDR and NA Taxonomy regulation. Notably the concept of “sustainable investment” and consideration of principal adverse impact indicators under the SFDR as well as the concept of NA Taxonomy alignment.

Regulation

Objective

Regulation in a nutshell

Interaction between regulations

NA Taxonomy

Establishes a framework for “environmentally sustainable” economic activities in the NA

Provides businesses with a common language to identify whether or not a given economic activity should be considered environmentally sustainable:

Must substantially contribute to one of the six environmental objectives
Not significantly harm any of the other environmental objectives; and
Comply with minimum social safeguards

NA Taxonomy alignment is one of the parameters to be disclosed and reported on under the SFDR if the fund commits to make sustainable investments.

SFDR

Seeks to enhance transparency and comparability on sustainability disclosure and reporting obligations towards end-investors

Introduces key requirements:

Classification of funds as Article 6/8/9
Definition of “sustainable investment”
Mandatory firm level disclosures on consideration of sustainability risks and principal adverse impact
Mandatory product level disclosures for Article 8 and 9 funds

Product level pre-contractual disclosures and periodic reporting will include, among other information on:

% of “sustainable investments”
% of NA Taxonomy aligned investments
Sustainability indicators, including principal adverse impact indicators considered by the fund

MIFID II ESG amendments

Introduces consideration of sustainability preferences for end-investors

End-investors as part of the suitability assessment will need to declare if they have sustainability preferences based on the options proposed by the regulator:

Minimum % of sustainable investment under the SFDR
Minimum % of NA Taxonomy aligned investment
Consideration of principal adverse impact indicators proposed by the SFDR

The 3 possible sustainable preferences are directly linked to key concepts set out in SFDR and NA Taxonomy regulation. Notably the concept of “sustainable investment” and consideration of principal adverse impact indicators under the SFDR as well as the concept of NA Taxonomy alignment.