New EU regulations are pushing companies to increase ESG reporting. Here is a brief introduction.
Sustainability and climate change have become increasingly prominent on the global agenda, leading to increased pressure on businesses to make more sustainable decisions and report their climate impact. In response, several regulations and initiatives have been introduced to promote sustainability in business. Among these regulations are CSRD, SFDR and SBTI, which are designed to help companies improve their sustainability reporting and reduce their climate impact. This article will explore what these three regulations entail and how they will affect companies in different sectors.
Corporate Sustainability Reporting Directive (CSRD)
The CSRD, or Corporate Sustainability Reporting Directive, is an EU regulation that has been adopted to strengthen sustainability information reporting requirements for European companies. CSRD requires companies to publicly report on their sustainability and ESG (Environmental, Social, and Governance) performance in a more detailed and standardized way than before. This aims to make it easier to compare and evaluate companies' sustainability and ESG performance and give investors and other stakeholders better insight into corporate sustainability.
Who is covered by CSRD?
Under the latest CSRD legislation, which comes into effect from 2023, all major listed and non-listed companies with more than 250 employees and a turnover of over €20 million will be subject to CSRD. This also includes financial institutions and insurance companies. In addition, companies are required to report on non-financial information, including sustainability and ESG performance. It's worth noting that these are minimum requirements and some countries may choose to implement stricter requirements in their national legislation.
Sustainable Finance Disclosure Regulation (SFDR)
The SFDR, or Sustainable Finance Disclosure Regulation, is also an EU regulation. The purpose of this regulation is to ensure that financial institutions report on how they integrate sustainability into their investment decisions. The SFDR sets requirements for how financial institutions must report on their investment products, including their sustainability characteristics and sustainability risk management.
Who is covered by SFDR?
The SFDR was implemented in the EU in March 2021 and covers all financial market participants providing investment services in the EU. This includes asset managers, investment advisors, investment funds and pension funds. The SFDR requires these financial institutions to disclose information about their sustainability practices and the environmental and social impacts of their investments. This includes information about their sustainability risk management policies and the integration of sustainability criteria into their investment decisions. Furthermore, the SFDR requires financial institutions to use standardized sustainability labels to describe the sustainability qualities of their products, making it easier for investors to compare and make informed investment decisions.
Science-Based Targets Initiative (SBTI)
Finally, we have SBTI, or Science-Based Targets Initiative. SBTI is a global campaign to help companies set science-based targets for their emissions and reduce their carbon footprint. SBTI is one of the most recognized standards for science-based climate targets and its goal is to ensure that companies take ambitious steps to reduce their greenhouse gas emissions and contribute to a more sustainable future. By following the SBTI guidelines, companies can help meet the goals of the Paris Agreement and limit global warming to below 2 degrees Celsius.
Who is covered by SBTI?
SBTI is a global and independent organization that works with companies and organizations to help them set and achieve science-based greenhouse gas emission reduction targets. This initiative is voluntary and any company or organization that wishes to participate can do so by setting and reporting on their science-based emissions targets. The SBTI is primarily aimed at larger companies and organizations and has set criteria for who can participate. To be approved by SBTI, the company must have a climate strategy and a science-based greenhouse gas emission reduction target in line with SBTI's criteria. In addition, the company must report on progress towards the targets and maintain transparency about their climate impact.
A future with increased regulation
Sustainability and climate change are undoubtedly some of the biggest challenges facing the world today, and businesses play a crucial role in meeting these challenges. CSRD, SFDR and SBTI are three regulations designed to help companies improve their sustainability reporting and reduce their climate impact. These regulations and initiatives indicate a growing demand for greater transparency and accountability from businesses and are expected to impact companies of all sectors and sizes.
It is crucial that companies take these regulations seriously and take the necessary steps to comply and contribute to a more sustainable future. By making sustainable decisions and reporting on their climate impact, businesses can play a key role in the fight against climate change and help create a more sustainable world for future generations.
