Sustainability Blog #14

Legislation and regulation

Although the European Sustainability Reporting Standards (ESRS) were adopted back in July, they were once again in the centre of attention during October. In July, the European Commission adopted the ESRS as a delegated act supplementing the Corporate Sustainability Reporting Directive (CSRD), after an open consultation that solicited feedback from the private sector, NGOs, and international organisations. Following the end of the consultation period, however, the European People’s Party (EPP) and the Renew political group filed a motion to raise objections to the standards’ approval, thus requesting a full plenary vote on the matter. The goal of this motion was to either postpone the implementation of the standards or to significantly relax the obligations that companies will face under the ESRS. However, the motion was rejected with 359 votes against and 261 in favour. As a result, the ESRS have been formally adopted, which means that mandatory sustainability reporting will apply to 50,000 companies from January 2024 onwards. From 2028, non-EU companies operating in Europe will also need to report in accordance with the ESRS or equivalent standards.

On 24 October, the Council of the EU announced the adoption of a regulation that establishes a new European Green Bond Standard. This represents the final significant milestone in the establishment of the European Green Bonds (EuGB) label. Its primary objectives are to combat greenwashing and facilitate the growth of the sustainable finance sector in the EU. Earlier this year, the Council and Parliament had reached an agreement on the new regulation, establishing the EuGB standard as voluntary, while also including a voluntary framework for sustainability-linked bonds and green bonds not issued with the EuGB designation. The regulation will be signed and entered in the EU’s Official Journal, and will enter into force twenty days later. Application starts twelve months after entry into force.

The European Commission also published its work programme for 2024, listing several sustainability and climate actions related to the EU Green Deal as one of the EU’s headline ambitions. The plan includes various initiatives, such as kickstarting the process to establish a 2040 climate target, introducing the European wind power package to expedite the deployment of wind turbines, initiating a programme focused on industrial carbon management, including a strategy for sustainable carbon capture, utilisation, and storage (CCUS), and adopting an initiative to enhance water resilience.

News and publications

The Task Force on Climate-related Financial Disclosure has issued its 2023 status report. This report discusses the advances made by companies in their efforts to provide financial disclosures related to climate matters. It also sheds light on the difficulties they encounter while attempting to make these disclosures, particularly when it comes to integrating climate-related risks into their financial statements. The report states that the percentage of companies disclosing TCFD-aligned information continues to grow, though more progress is needed. For fiscal year 2022 reporting, 58% of companies disclosed in line with at least five of the eleven recommended disclosures – up from 18% in 2020. However, only 4% of companies disclosed in line with all eleven recommendations. Moreover, the percentage of companies reporting on climate-related risks or opportunities, board oversight, and climate-related targets increased significantly between the fiscal years 2020 and 2022, by 26, 25 and 24 percentage points, respectively. You can find the report here.