Key regulations in the area of sustainable development

More and more companies are now facing the need to formalise green transformation efforts and integrate them into their business strategy, improve communication and increase transparency. Expectations for consistent, comparable and transparent information on climate and other environmental, social and corporate governance (ESG) information are growing steadily - driven by investor pressure, stakeholder pressure and, increasingly, regulatory action.

Regulatory changes are gaining momentum, both the number of regulations and the complexity of requirements to be met by the organisation are increasing. In this newsletter we direct you to materials that discuss the most important of these regulations.

Key regulations

In July 2021, the European Commission published a long-awaited communication on promoting sustainable finance and a proposal for an EU green bond standard that update its action plan from 2018. The package includes:

Strategy for financing the transition to a sustainable economy

The new sustainable finance strategy aims to support the financing of the transition to a sustainable economy by proposing action in four number of areas: transition finance, inclusiveness, resilience and contribution of the financial system and global ambition. Read the strategy here.

Proposal for a standard for European green bonds

The European green bond standard (EUGBS) is a voluntary standard to help scale up and raise the environmental ambitions of the green bond market. Establishing this standard was an action in the Commission’s 2018 action plan on financing sustainable growth and is part of the European green deal. It is based on the recommendations of the Technical Expert Group on Sustainable Finance. Read the proposal here.

Delegated act supplementing Article 8 of the Taxonomy Regulation

The European Commission also adopted the delegated act supplementing Article 8 of the Taxonomy Regulation for scrutiny by co-legislators. This delegated act specifies the content, methodology and presentation of information to be disclosed by financial and non-financial undertakings concerning the proportion of environmentally sustainable economic activities in their business, investments or lending activities. Read the act here.

CSRD – ESG reporting in practice

The European Commission published a draft directive on non-financial reporting in April. The CSRD (Corporate Sustainable Reporting Directive) will replace the existing NFRD (Non-financial Reporting Directive) , imposing not only more reporting obligations, but also expanding the list of entities and areas covered by reporting. A significant change will be the obligation for all large companies that meet certain financial and employment criteria, and not only for listed companies. The new directive, after its adoption by member states and implementation into national legislation, will come into force in 2024 and will apply to data reporting for 2023.

EU Taxonomy

In May 2021, a draft delegated act to the Regulation on establishing a framework facilitating sustainable investment was published, aimed at clarifying the disclosure requirements from 2022 in accordance with Art. 8 of Taxonomy. The update introduces significant changes regarding the scope of disclosed information and the dates of obligatory disclosures.

The EU Taxonomy establishes 6 main environmental objectives representing different areas taken into account while evaluating economic activities to qualify as environmentally sustainable. The below table portrays the mandatory application timelines.

SFDR

There are further requirements under the Sustainable Finance Disclosure Regulation (SFDR) in terms of adverse effects on sustainable development. Financial market participants and financial advisers should have disclosed their approach to the impact of products and investments on ESG aspects.