Potential Changes to EU Sustainable Reporting
- The EU has a history of regulating sustainable reporting, most notably through the Non-Financial Reporting Directive.
- The European Commission introduced new regulations in April 2021 that would require sustainable reporting of 50,000 additional companies.
- The US and other regions are expected to make similar shifts toward sustainable reporting regulations and requirements in the coming years.
History of EU Sustainable Reporting
In April of 2021, the European Commission introduced a new package of sustainable reporting requirements. This serves to bolster the previously introduced and implemented directive known as the Non-Financial Reporting Directive (NFRD). Under this policy, large, public-interest, companies registered in the European Union (EU) would be required to report upon a series of sustainable indicators including the environment, human rights, anti-corruption, and board diversity. Since the introduction of the NFRD, the EU has made efforts to aid companies in the reporting efforts through the publication of different, non-mandatory guidelines, however there still remains much work to be done in making the data collection and reporting process transparent, streamlined, and comparable across industries. With these factors in mind, new regulations were introduced.
New Regulations
Under the NFRD, around 12,000 companies were required to provide the aforementioned non-financial reporting metrics. With the new proposals of 2021, titled together under the Corporate Sustainability Reporting Directive (CSRD), over 50,000 new companies would be added to this list. In addition to expanding the number of companies required to report, additional regulations on how to classify sustainable data and sustainable investments were also provided, with a particular emphasis on climate change adaptation and mitigation. It is important to note that these new regulations are still in the proposal stage and therefore will likely be debated and amended in the following years with an expected publication in 2023.
What’s Next
To date, the EU regulations specially target large corporations. As of course there are thousands of companies of a smaller size that do not fall under these categories, the European Commission is in the process of creating separate guidelines for small and medium sized companies. In this process, the EU has endorsed a private reporting organization known as the European Reporting Advisory Group, to aid in the development of effective standards. Still, challenges remain, such as ensuring the quality of data, creating a framework for accountability, and expanding to all companies, public and private, within the EU.
Beyond the EU, it is expected that the strong policy stance the EU is taking towards sustainable reporting will directly influence other regions, particularly the United States. Already, the Biden Administration has expressed interest in bolstering sustainable investing and reporting regulations within the US. To this same end, in March 2021 the Securities and Exchange Commission created their first task force for sustainable funds. With this in mind, for those interested in addressing these impending regulations, check out the sustainable data and tools provided by our company, Physis Investment at www.physisinvest.com.
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