Proposal on mandatory sustainability reporting for companies in the European Union
On 21 April 2021, the EU Commission adopted a package of measures in order to improve the flow of money towards sustainable activities across the European Union. According to the EU Commission, the measures adopted are intended to enable investors to increasingly shift their investments towards more sustainable technologies and companies, thus contributing significantly to Europe’s climate neutrality by 2050.
The package is comprised of i) a delegated regulation supplementing the Regulation 2020/852 on the establishment of a framework of facilitate sustainable investment (hereinafter: “EU Taxonomy Regulation”, ii) a proposal for a Corporate Sustainability Reporting Directive as well as iii) other six amending Delegated Acts on fiduciary duties, investment and insurance advice, which shall ensure that financial firms (e.g. advisers, asset managers or insurers) include sustainability in their procedures and their investment advice to clients.
The EU Taxonomy Regulation establishes an EU-wide classification system or “framework” intended to provide businesses and investors with a common language to identify to what degree economic activities can be considered environmentally sustainable. The EU Taxonomy Regulation also introduces disclosure obligations on companies as well as financial market participants. Furthermore, it delegates to the EU Commission the power to adopt further obligations supplementing the EU Taxonomy Regulation in a delegated regulation (hereinafter: “EU Taxonomy Delegated Regulation”). On 21 April 2021, the College of Commissioners reached a political agreement on the text. It has been published in the draft of the EU Taxonomy Delegated Regulation. The EU Taxonomy Delegated Regulation shall be formally adopted by the EU Commission once it has been translated in all EU languages at the end of May. It will then be scrutinised by the European Parliament and the Council. According to the EU Commission, the EU Taxonomy Delegated Regulation shall be applicable from 1 January 2022. The EU Commission also published a Q&A on the EU Taxonomy Delegated Regulation as well as a Q&A on how the EU Taxonomy shall work in practice.
The proposal for a Corporate Sustainability Reporting Directive shall aim to improve the flow of sustainability information in the corporate world. It shall make sustainability reporting by companies more consistent, so that financial firms, investors, and the broader public can use comparable and reliable sustainability information according to the EU Commission. The proposal would revise and strengthen the existing rules introduced by the Non-Financial Reporting Directive (NFRD). Pursuant to the EU Commission’s press release, the proposal for a Corporate Sustainability Reporting Directive aims to create a set of rules that shall bring sustainability reporting on a par with financial reporting. Therefore, it would extend the EU’s sustainability reporting requirements to all large companies and all listed companies. Overall, the proposal would aim that companies report reliable and comparable sustainability information. According to EU Commission, companies shall have to report on how sustainability issues, such as climate change, affects their business and the impact of their activities on people and the environment.