Publication of the implementing decree of Article 29 of the Energy-Climate Law on non-financial reporting by market players

Published in the Official Journal on May 27^th 2021, the implementing decree for Article 29 of the Energy-Climate Law revises, clarifies and strengthens sustainability-related financial disclosures for market players. The decree contributes to greening the financial system as it supplements existing European legislation in three complementary areas: climate, biodiversity, and the integration of ESG factors in governance and risk management of financial institutions - making it is a cornerstone of sustainable finance legislation.

The decree is in line with existing European law, which has been strongly influenced by a pioneering French legislative framework since 2015

Since 2015, the French legislative framework already includes a regulatory framework for ESG transparency of investors (most notably on climate change). Article 173-VI of the French Energy Transition for Green Growth Act already required, indeed, systematic disclosure of the ways in which ESG criteria are taken into consideration in investment policies and risk management procedures, while encouraging financial actors to factor in climate-related risks.

The application review of the French framework then enabled, in 2019, to take stocks of lessons learned. It strongly influenced the European Disclosure framework, and most particularly the so-called "Disclosure" regulation - one of the pillars of the EU sustainable finance strategy.

Article 29 of Law No. 2019-1147 (Energy-Climate Law) of November 8^th 2019 falls within this context, and articulates French and EU requirements with a triple objective:

1. Safeguard and clarify the regulatory layout resulting from Article 173-VI;
2. Enhance this layout in order to meet the requirements of the Energy-Climate Law, with a focus on climate change and biodiversity erosion-related risks disclosure;
3. Learn from the lessons of French non-financial reporting experience, notably with regards to the structuration of information disclosed according to the following key pillars (defined by the Task Force on Climate-Related Financial Disclosures): strategy, governance, risk management and the use of specific metrics and targets.

The implementing decree supplements European law in 3 key areas

The implementing decree defines the practical details of Article 29 and complements European law in three key complementary areas:

1. Climate - notably with the required disclosure of alignment strategies with regards to the temperature objectives of the Paris Agreement (quantitative greenhouse gas emission targets to be set every five years until 2050), as well as the share of Taxonomy-aligned assets (or balance-sheet) and finally the share of fossil fuels related activities;
2. Biodiversity - notably through the required disclosure of alignment strategies with regards to international biodiversity preservation objectives (quantified target to be set);
3. ESG factors to be fully integrated in the risk management, governance and transition support systems (notably shareholder engagement) of financial actors.

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