“EU Sustainable Finance Action Plan” gathers pace rapidly
The European Green Deal ("The European Green Deal") is the European Commission's plan to achieve in particular the commitments made in the Paris Agreement to reduce greenhouse gas emissions.
And the goal is even higher: Europe is supposed to become the first climate-neutral continent by 2050. As a sub-strategy of this Green Deal, the Sustainable Finance Action Plan is intended to help further increase private investment in a “climate-neutral, resilient, resource-efficient and equitable” economy. How?
With a total of ten initiatives, the European Commission aims to create a framework for increased transparency and standardization regarding ESG information.
These three of the ten initiatives will also be relevant for Swiss companies if they are listed on the stock exchange or offer financial products or services in the European Union.
- The Sustainable Finance Disclosure Regulation (SFDR) must be applied since March 10 of this year. Swiss financial institutions that also offer financial products in the European Union must disclose how they record and deal with sustainability risks on the one hand and their impact on sustainability factors on the other. This concerns the disclosure of information on product information sheets and brochures, but also the company-wide publication on the website. Indirectly, this regulation may become “tangible” for all listed companies, as asset managers in the EU will also approach them to complete the required information.
- The Taxonomy Regulation (TR) came into force on July 12, 2020 and must be applied from January 1, 2022. From then on, large listed companies in the EU will have to disclose how much revenue they generate from activities that are sustainable within the meaning of the EU Taxonomy. In a first step, an activity is sustainable if it contributes substantially to climate change mitigation or adaptation. In addition to these two, the taxonomy also pursues four other environmental goals. Their detailed criteria are to be enacted in the coming year.
- Outlook: A revised version of the already existing Non-Financial Reporting Directive (NFRD) is expected this year. The aim of this reform is to provide large listed companies in the EU area with more specific and binding requirements regarding their non-financial reporting in the future, so that investors can better assess the performance of companies with regard to environmental risks and human rights, for example. The revised directive is expected to enter into force in the second half of 2022.
Not to be forgotten in Switzerland is the indirect counter-proposal to the Corporate Responsibility Initiative. With this, a reporting obligation on non-financial information will be anchored in law for the first time in April 2021.
The trend on the European continent thus seems clear: In the future, large companies will be expected to provide more detailed and comparable reporting on non-financial topics than it is the case today. This will also increase its importance, as it will have an even greater impact in the future on the decision as to whether or not a company can be part of a sustainable investment portfolio.
BSD has been advising companies on sustainability strategy and communication for over 20 years. We closely follow current developments and continually consider how companies can meaningfully and efficiently meet existing and future requirements. We also apply our proven approaches to the development of reporting for the SFDR, such as our approach to identifying relevant sustainability drivers or our proprietary methodology for assessing sustainability risks along the entire value chain. For the determination of a company’s taxonomy-relevant share of sales, we have developed an approach that is based on the procedure proposed by the “Technical Expert Group”.