Week 6: What’s New on ESG Legislation in Europe

Photo by Tingey Injury Law Firm on Unsplash

Hello everyone,

The European Union implemented a range of regulations to advance sustainable actions and provide a roadmap for sustainable investment. These regulations contain several ESG-related regulatory measures that keep being introduced and do or will affect companies’ operations and reporting.

These are quite new regulations so there are high impacts and costs not only in adopting the measures but also keeping up-to-date with the regulations that are being developed. This can be highly costly for companies monetarily, in time, and in other resources.

If we want to achieve the goals proposed for 2030 it urges the need to keep developing “ESG regulations”. It is, however, quite unrealistic to believe these measures will highly contribute to achieving the 2030 goals. This is due to the fact that these regulations should have been developed a long time ago. They demand time to develop, approve, implement and evaluate. Luckily we will achieve the implementation phase by 2030 so impacts would only be measured after that…

CSRD — Corporate Sustainability Reporting Directive

This directive aims to provide guidelines on ESG reporting and so, ensure that the information reported by businesses is reliable, transparent, and comparable. This is key to properly benchmarking the sustainability performance of companies, industries, and sectors.

What does it include?

1. Makes it mandatory for also SMEs listed on regulated markets to report on their ESG performance;
2. Adds a quality measure by requiring that the ESG report is audited by an external party;
3. Details the standards and reporting requirements

To which companies does this apply?
EU companies that have at least two of the following criteria:

1. More than 250 employees
2. Turnover that exceeds € 40 million
3. A balance sheet that exceeds a total of € 20 million.

CSRD is still under development and it is expected to be fully in place by January 2024 (January 2026 for SMEs).

CSDDD — Corporate Sustainability Due Diligence Directive

This directive aims to raise the responsibility of businesses for the environmental and human rights impacts caused by their operations and decision-making. The scope is broad as it tries to look at and evaluate the overall supply chain of the businesses.

The main goals are first to increase business and consumer awareness of their selling/purchasing impacts. Then, improve business transparency and sustainable messages and lastly, incentivize the mitigation of risks and adoption of sustainable practices.

The CSDDD follows the OECD due diligence guidance and is divided in 6 stages:

1. Integrating due diligence into companies’ policies and management systems
2. Identify & assess actual or potential adverse impacts
3. Eradicate, prevent, or mitigate adverse impacts
4. Monitor the effectiveness of the due diligence policies and measures
5. Publicly and transparently communicating how impacts are addressed
6. Establish and maintain a complaints procedure

To which companies does this apply?
All large EU companies or non-EU companies that are active in the EU. SMEs or micro companies are not included in the scope, however, they can be indirectly affected in case they are contractors or subcontractors to companies included in the scope.

It is still under development, so it is still unclear when it will be implemented. There is however a timeline of three years from the moment the directive is implemented for companies to adopt it.

EU Green Bonds Regulation

This regulation will provide a standard for how companies and public authorities can use green bonds to raise funds on capital markets. It will fix the current problems of definition, reliability, and clarity.

For that, it is designed to provide a clear definition of green economic activities, reduce the risks for issuers, standardize the practice of external review and bond quality evaluation and improve the reliability and trust in these external reviews.

It is also still under discussion, but it is expected to be adopted by the market by 2025 at the latest.

This was quite an extensive one, props to you if you reach this point.
Thanks and let me know your thoughts on it!