Dear clients and friends,

Further to the client update we issued on July 5, 2022, the Israel Securities Authority (hereinafter: the ISA) published on December 19, 2022, the final version of the directive for fund managers and large licensees regarding the integration of environmental, social, and governance (hereinafter: ESG) considerations into investment decision-making or risk management processes (hereinafter: the Directive).

The Directive is substantively similar to the earlier draft published for public comments, with the main differences being:

• The comparative law section in the explanatory notes has been updated to reflect global regulatory developments that occurred between the publication of the draft (July 4, 2022) and the publication of the final directive (December 19, 2022).
• The description of the regulatory landscape in Israel (in the explanatory notes) has been updated to reflect the publication of the Banking Supervisor’s directive on November 15, 2022 (regarding “Public Disclosure on Environmental, Social, and Governance (ESG) aspects”), and the publication of the Ministry of Environmental Protection on October 26, 2022 (draft “Taxonomy for Classifying Economic Activities according to their Impact on Defined Environmental Objectives”).
• In light of public comments, the section on the “purpose of the directive” in the explanatory notes has been expanded to clarify that the Directive does not mandate the integration of ESG considerations into the activities of entities subject to the Directive, but only requires them to examine and study the subject, decide on their policy in this regard, and disclose it.

• The wording of the Directive itself has not been significantly updated. However, it should be noted that the immediate reporting obligation of a “large licensee” and a fund manager (Sections 2.1 and 2.2 of the Directive) has been updated such that it no longer includes a reference to how these entities intend to communicate their policy to their clients.

“Large licensees” and fund managers are required to complete the “processing and implementation” stage (i.e., the internal examination of whether to integrate ESG considerations) and the “externalization and application” stage (i.e., reporting on the conclusions of the internal examination) within six months of the publication of the Directive.

For the full text of the Directive >> click here.

It should be clarified that, unlike previous publications by the ISA on this subject, the Directive does not apply to all reporting entities, but only to fund managers and “large” licensees under the Investment Advice, Investment Marketing and Portfolio Management Law, 1995 (hereinafter: the Investment Advice Law).

In this context, we would like to update you that on October 26, 2022, a draft of the Israeli Green Taxonomy for classifying economic activities according to their impact on environmental objectives (hereinafter: the Israeli Taxonomy) was published for public comments. The draft is the result of joint work by the Ministry of Environmental Protection and financial regulators, including the ISA, and it is based on the European Taxonomy Regulation. The Israeli Taxonomy is expected to serve as a key tool in developing the sustainability finance sector and in formulating environmental and climate criteria within the framework of financing and investment activities in the Israeli financial sector, in line with developments in the European Union in this regard.

For the draft >> click here.

Our firm has a dedicated desk specializing in ESG and climate risk management, as well as expertise in providing ongoing support to fund managers and licensees under the Investment Advice Law. We would be happy to assist you with any matter in these areas.

Herzog Fox Neeman