Updated: Mar 4, 2022
In a step towards advancing its ambitions on becoming climate-neutral, the European Commission published several regulations and legal acts in the recent past, and more are likely to follow. The Green Deal is a pillar in the European Union’s efforts towards kick-starting its Member State’s economies as a response to the COVID-19 pandemic. Sustainable, climate-friendly technologies and related incentives lie at the heart of these activities.
As a consequence of these developments, new regulatory instruments became necessary, and with them came additional reporting requirements.
Alongside Regulation (EU) 2020/852, more commonly known as the EU Taxonomy, other regulatory measures were introduced in the past to support reporting and benchmarking of economic activities and their effects on non-financial aspects. These include the Non-Financial Reporting Directive (NFRD) and the Sustainable Finance Disclosure Regulation (SFDR).
The Non-Financial Reporting Directive (2014/95/EU) requires large companies, to disclose non-financial information on their business activities. The information covers environmental, social and governance related (ESG) information and supports transparency towards stakeholders and benchmarking against the EU’s targets.
In 2019, the Sustainable Finance Disclosure Regulation (EU) 2019/2088 came into effect, requiring financial markets participants and providers of financial services to report on sustainability-related effects of their products and services.
With the EU Taxonomy Regulation, in 2020 a classification system of sustainable economic activities was established. The Taxonomy and its corresponding delegated acts will cover six environmental objectives: Climate change mitigation, climate change adaptation, the sustainable use of water and protection of marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.
The respective delegated acts, of which the first has been published in 2021, define technical screening criteria against which economic activities will be benchmarked. Following the regulation, financial market participants must disclose whether their economic activities fulfil the criteria for EU Taxonomy alignment, and to which extent their investments fall under sustainable economic activities.
In April 2021, the European Commission suggested further developing the reporting requirements of the NFRD and has put forward a proposal for a Corporate Sustainability Reporting Directive (CSRD). This proposal would amend existing regulation and cover a large share of companies and regulated market activities. The Commission aims to include more information on business activities and their impact on people and the environment, and to make the information provided more comparable across market actors.
In an attempt to disclose the full picture of economic activities and their effect on ESG-related aspects, mandatory reporting on climate-related consequences of economic activities and investments is likely to become more extensive in the foreseeable future. To find out, how your company can use sustainability reporting obligations to its benefit, find out more on VIRIDAD.eu!
EU Taxonomy regulation 2020/852 - https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32020R0852
NFRD (2014/95/EU)- https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
Sustainable Finance Disclosure Regulation (EU) 2019/2088 - https://eur-lex.europa.eu/eli/reg/2019/2088/oj