The new playbook
Europe’s Green Deal is a reality. In partial response to the 2030 Sustainable Development Goals, the European Commission has produced its own legislative sustainability reporting framework for companies, consisting of three parts: CSRD, EU Taxonomy, and SFDR.
A new improved version of the Non-Financial Reporting Directive (NFRD), the Corporate Sustainability Reporting Directive (CSRD), is wider in scope and more transparent, and will come into force in January 2024. This deadline applies to companies listed on the European stock exchange (excluding micro-enterprises) that meet two of the following three criteria: 250 employees, more than €40m turnover, and/or more than €20m on the balance sheet.
The second framework, EU Taxonomy, is a classification system designed to stamp out ‘greenwashing’ and give investors and other stakeholders a clearer idea of a company’s environmental credentials. Green business activities will have to contribute significantly to at least one of the following six environmental goals:
- less impact on climate change
- adaptation to the changing climate
- sustainable use and protection of water and marine resources
- transition to circular economy, waste prevention and recycling;
- emissions prevention and control;
- protecting healthy ecosystems.
Any activity the company chooses to focus on should not have a negative effect on the other five. Businesses must also indicate what percentage of their turnover, capex and opex is spent on these environmental activities.
The last of the frameworks is SFDR, which requires the financial market and financial advisory bodies to report on the integration of sustainability risks and impact into their processes, and the provision of sustainability-related information related to financial products.