In the years following the publication of the 2018 EU Action Plan on sustainable finance, several initiatives have been promoted in support of the Plan’s objectives.
In the years following the publication of the 2018 EU Action Plan on sustainable finance, several initiatives have been promoted in support of the Plan’s objectives.
On 21 April 2021 the European Commission presented a proposal for a directive on corporate sustainability reporting, called the Corporate Sustainability Reporting Directive (CSRD). It requires non-financial companies to disclose a range of information on the risks and impacts relating to the sustainability issues of their business activities, through the publication of a sustainability report.
The proposal for a directive stems from the recognition of the limits of the current system for reporting non-financial information, which is governed by Directive 2014/95/EU (Non-Financial Reporting Directive, NFRD): a serious weakness has in fact been identified in sustainability reporting practices, which are no longer able to meet the growing demand for data and information from investors, and which suffer from a lack of sufficiently reliable and comprehensible information.
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Among the new features of the Commission’s proposal, we would point out:
The widening of the scope of the NFRD in terms of the entities covered. Reporting obligations are extended to all large companies (with at least 200 employees), listed and unlisted, and to listed SMEs, excluding micro-enterprises. This widening will increase the number of recipients of the new provisions from 11,000 to 50,000;
The introduction of the principle of double materiality: the information to be provided will make it possible to understand, on the one hand, how ESG factors affect the development and performance of the company (inside-out perspective) and, on the other, to illustrate the impact of the company’s activities on the company itself and on the external environment (outside-inside perspective);
The adoption of common reporting standards, whose development has been entrusted to EFRAG (European Financial Reporting Advisory Group);
The obligation for the information to be reviewed by a qualified external body, using a simplified method known as ‘limited assurance’.
On 6 July 2021 the Commission presented another package of measures on sustainable finance. These include the Strategy for financing the transition to a sustainable economy and a proposal for a regulation on European green bonds.
The new strategy outlined by the Commission identifies six lines of action to support the transition process.
Developing a more comprehensive framework to facilitate the financing of the transition of certain activities that do not currently contribute to climate neutrality objectives.
Ensuring greater inclusiveness of sustainable finance instruments. To achieve this objective, the Commission, together with the European Banking Authority, is assessing support tools to facilitate the introduction of ‘green’ loans by 2022 and to increase SMEs’ access to sustainable finance advisory services.
Strengthening the economic and financial system against external sustainability risks, by adopting measures to ensure that ESG risks are systematically included in credit ratings and rating outlooks.
Strengthening the financial system’s contribution to sustainability, by providing that: i) financial institutions signal their transition and decarbonisation plans to the market, including intermediate and long-term targets; ii) the fiduciary duties of investors and pension funds towards beneficiaries also reflect the inside-out ESG risks of investments.
Ensuring the integrity of the financial system and monitoring its orderly transition towards sustainability. Preventing the risk of greenwashing from multiplying as demand for sustainable investment grows, which would lead to a loss of confidence in sustainable finance products and, more generally, in the financial system, undermining its soundness.
Developing international sustainable finance initiatives and standards. The Commission intends to strengthen cooperation with its partners in international forums to reach agreement on common objectives and principles for taxonomies and to define a global strategy for strengthening sustainable finance in the Union’s member countries, especially low- and middle-income ones, also by promoting issuances of green bonds.
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