Sustainability Blog #2

Legislation

October was marked by a big step forward in the process of delivering the Directive on Gender Balance on Corporate Boards. On 17 October, Council of the EU gave its final go-ahead to EU rules to promote more balanced gender representation on the boards of listed companies. In the official press release by the Council, it’s stated that “the new rules will help to remove the obstacles women often face in their careers”, and that “companies would greatly benefit from women realising their potential in decision-making positions”. The agreed text of the Directive lays down that at least 40% of non-executive director positions in listed companies should be held by members of the underrepresented sex by 2026. If member states choose to apply the new rules to both executive and non-executive directors, the target would be 33% of all director positions by 2026. So, what’s next? It is expected that the European Parliament should vote on this Directive by the end of this year and after that Member states will have two years following the entry into force of the directive to adopt the required national measures.

Besides that, the Council also reached an agreement on a proposal to revise the Energy Performance of Buildings Directive (EPBD) which is a part of the Fit for 55 plan. The main objectives of the revision are that all new buildings should be zero-emission buildings by 2030, and that existing buildings should be transformed into zero-emission buildings by 2050. When it comes to new buildings, the Council agreed that from 2028 new buildings owned by public bodies would be zero-emission buildings, and that from 2030 all new buildings would be zero-emission buildings. Member states also agreed to add a new category “A0” to the energy performance certificates that would correspond to zero-emission buildings. Furthermore, member states will be able to add a new category “A+” corresponding to buildings, which in addition to being zero-emission buildings contribute on-site renewable energy to the energy grid. Because of this agreement, it is now possible for the Council to start the negotiations with the European Parliament. 

Also, The Platform on Sustainable Finance (PSF) has released its Final Report on Minimum Safeguards, as laid out in Articles 3 and 18 of the EU Taxonomy. The report states that the sustainability of economic activity should be considered with reference to processes for compliance with human rights, anti-bribery and corruption, and fair competition. Moreover, it takes a look at the connection between the minimum safeguards and other EU climate-related legislations (CSRD, SFDR, CSDD). However, it’s important to note that the PSF is only an advisory body, and the purpose of its reports is to provide advice. In the end, European Commission can, but doesn’t have to oblige to the suggestions in the report.

News and Reports

On 21 October, at its October meeting, International Sustainability Standards Board (ISSB) decided to require company disclosures on Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions, although relief measures will be developed in order to help firms tackle Scope 3. Thus, businesses will have to report on direct and all indirect emissions that occur in the value chain including both downstream and upstream. Since the ISSB and EFRAG are coordinated when it comes to their standards, this probably means that when EFRAG develops the European Sustainability Reporting Standards, Scope 3 reporting will be a requirement in the EU too.

Moreover, Task Force on Climate-related Financial Disclosures (TCFD) has issued the 2022 Status Report. The report provides an overview of current disclosure practices in terms of their alignment with the TCFD’s Recommendations. It also highlights steady increase in firms making disclosures aligned with the TCFD Recommendations over the past five years. To be more precise, for fiscal year 2021, 80% of companies disclosed in line with at least one of the 11 recommended disclosures. On the other hand, only 4% disclosed in line with all 11 recommended disclosures and only around 40% disclosed in line with at least five. All regions have significantly increased their levels of disclosure over the past three years although Europe remains the leading region for disclosure (at 60% on average across the 11 recommended disclosures), and reporting on climate-related risks and opportunities is higher than any other recommended disclosure.

It’s also interesting to note that the European Commission adopted its 2023 Work Programme. It includes 43 new policy initiatives, across 6 headline ambitions. The first ambition, however, is to deliver the European Green Deal. Because of that, next year the Commission will propose a comprehensive reform of the EU's electricity market, including decoupling electricity and gas prices. The Commission will also propose to create a new European Hydrogen Bank, which will invest €3 billion into kick-starting a hydrogen market in the EU.

Finally, The European Securities and Markets Authority (ESMA) announced that it is changing its Union Strategic Supervisory Priorities (USSPs) to include ESG disclosures alongside market data quality. ESMA’s press release states that they “will foster transparency and comprehensibility of ESG disclosures across key segments of the sustainable finance value chain such as issuers, investment managers or investment firms and, hence tackle greenwashing.”

Events

October was once again a very action-packed month when it came to sustainability related events in Croatia.

The month began with the 14th annual Conference on Sustainable Development which was held on the 4 and 5 October. The conference was hosted by the Croatian Business Council for Sustainable Development (HRPSOR) at the Hotel Esplanade in Zagreb. The theme of the conference was revolved around the upcoming Corporate Sustainability Reporting Directive as environmental, social and governance standards were discussed. A big part of the conference was also an award ceremony for the Croatian Sustainability Index award, which is awarded annually to the most sustainable businesses in Croatia. The list of this year’s winners is in the link.

The American Chamber of Commerce in Croatia (AmCham) held a conference entitled “Business sustainability with ESG principles” on 19 October. Introductory keynote speeches were followed by a lively panel discussion with panelists from different sectors who shared their experiences and advice on implementing ESG principles in their day-to-day business.

Finally, on 25 October, 4th annual Financial Conference was held at Hotel International. This year’s theme was “Green Finance” and the goal of it was to raise awareness and highlight the topic of sustainability from the perspective of finance through various discussions about including sustainability as a strategic concept of business, integration and measuring sustainability KPIs, sustainability reporting etc.