ESG and non-financial reporting for European Companies: Past, Present and Future.
Over the past few years, the European Union (EU) has been leading the way in promoting Environmental, Social, and Governance (ESG) principles and non-financial reporting among companies. As part of this effort, the EU has introduced several pieces of legislation that will affect European companies' responsibilities in ESG and non-financial reporting in the coming years. Here's a look at some of these key pieces of legislation:
The Non-Financial Reporting Directive (NFRD)
The NFRD, which was introduced in 2014, requires large companies in the EU to report on their ESG and non-financial performance. In March 2021, the European Commission proposed a revision of the NFRD to enhance the quality and comparability of the information provided by companies. The revision aims to expand the scope of the NFRD to cover more companies, introduce mandatory reporting on climate-related information, and establish standards for reporting on social and governance issues.
The Sustainable Finance Disclosure Regulation (SFDR)
The SFDR, which came into effect in March 2021, requires financial market participants and financial advisers to disclose information on how they integrate ESG factors into their investment decisions. The regulation aims to improve transparency and comparability of ESG-related information, and to prevent greenwashing.
The Taxonomy Regulation
The Taxonomy Regulation, which was introduced in 2020, establishes a framework to classify economic activities based on their contribution to environmental objectives. The taxonomy is intended to provide clarity and transparency for investors and companies regarding the environmental performance of economic activities and financial products.
The Corporate Sustainability Reporting Directive (CSRD)
The CSRD, which was proposed in April 2021, aims to update and expand the scope of the NFRD. The proposed directive would require all large companies in the EU to report on their sustainability performance using a common set of standards. It would also introduce mandatory reporting on social and governance issues, and would establish more rigorous reporting requirements on climate-related information.
The EU Green Deal
The EU Green Deal is a comprehensive plan to make Europe climate-neutral by 2050. The plan includes a wide range of initiatives to promote sustainable growth, including the European Climate Law, which enshrines the EU's commitment to achieving net-zero emissions by 2050. The EU Green Deal is expected to drive significant changes in policies and regulations across multiple sectors, and will have a significant impact on companies' ESG responsibilities.
As these new legislative initiatives come into effect, European companies will face increasing pressure to report on their ESG and non-financial performance. Companies that proactively adopt ESG principles and integrate them into their business strategies are likely to be well-positioned to meet these requirements and reap the benefits of sustainable growth.
