Green and Greener: status of sustainability developments in the EU
Green and greener: Status of sustainability developments in the EU
With so much going on sustainability-wise, companies are already preparing for sustainability reporting to become mandatory. With a number of ongoing initiatives, it’s not difficult to become overwhelmed with information overload. Here, we summarize the major developments of the past weeks.
The EU Taxonomy
The Platform on Sustainable Finance (PSF) has published a draft report that includes preliminary recommendations on what is referred to as Technical Screening Criteria (TSC) for water, circular economy, pollution prevention and control, biodiversity & ecosystems. The report is available for consultation until 24th September 2021.
The next steps are for the PSF to submit a final report to the European Commission in November 2021. Next, the Commission will adopt the delegated act in the first half of 2022, which will apply from 1 January 2023.
What should you know about the EU Taxonomy development?
The EU Taxonomy is a classification system that that allows to determine certain economic activities as being sustainable. There are six environmental objectives that (under the EU Taxonomy) must be met so that an activity can be considered as sustainable:
Climate change mitigation
Climate change adaptation
use and protection of water and marine resources
to a circular economy
prevention and control
and restoration of biodiversity and ecosystems
You might ask, what does this have to do with the TSC? Basically, everything. For each of the objectives, it is necessary to publish TSC’s- in short, the TSC specifies how an activity contributes to an environmental objective.
In simpler words, TSC’s give information on what elements “go into” each of the objectives. Highlighted in green are the objectives for which TSC’s already exist. To further simplify things, here’s what you need to know:
For the objectives of climate change mitigation and climate change adaptation, delegated acts for the TSC’s were accepted in June of this year and will likely apply from 1 January 2022.
The TSC’s for the remaining four environmental objectives (highlighted in red) are expected to apply from 1 January 2023.
Corporate Sustainability Reporting Directive (CSRD)
The EFRAG (European Financial Reporting Advisory Group) sustainability taskforce (PT-ESRS- Project Task Force on European Sustainability Reporting Standards) has entered into cooperation with the Global Reporting Initiative (GRI). Currently, the GRI standards are the most commonly used sustainability standards among EU companies.
How is this connected to CSRD? Companies that will fall under the scope of CSRD will be required to comply with the sustainability reporting standards currently “under construction” by the PT-ESRS and later adopted as delegated acts by the European Commission.
EFRAG has also indicated that it is also planning to engage with the IFRS Foundation in setting the sustainability reporting standards.
Why is this important?
With a headache of sustainability developments literally snowballing, the engagement of EFRAG with GRI (and potentially the IFRS) suggest that the EU sustainability reporting standards will take a worldwide angle, leading to setting a precedent for other sustainability developments: promoting a common, unified (not only within the EU) understanding of the new requirements and making the shift towards mandatory sustainability reporting as smooth as possible for the market.
And to quote Looney Tunes, “That’s all folks!” for now, but we are keeping a close and watchful eye on what is brewing in the sustainability pot for the future.