15 June 2023
Two key developments took place in the EU sustainable finance landscape this past week:
1. European Commission’s proposal for the European Sustainability Reporting Standards
On 9th June the Commission released their set of ESRS (largely building off those previously published by EFRAG but with some notable differences). Key differences Include:
- All standards – with the exception of ESRS 2 “general disclosures” – are now subject to materiality assessment. This allows companies to determine what is considered material and therefore what they report on, on the basis of these assessments. They are no longer required to report on topics such as climate, own-workforce, SFDR and EU climate benchmarks if they are not considered material.
- Increased phase-in of requirements for smaller firms (< 750 employees)
- Due to certain changes in wording, some data points are now optional even if they are material e.g. ESRS S1 allows more flexibility with regards to the disclosure of key characteristics of employees, and ESRS G1 disclosures on the topics of corruption and bribery
2. Updated EU Sustainable Finance Package
On 13th June, the European Commission published an update of its sustainable finance package. Initially introduced in 2018, the package established ambitious measures aimed at redirecting monetary flows towards sustainable investments and funding the transition towards a net zero carbon economy.
Tuesday’s announcement sees the Commission extend the scope of the existing package, providing increased guidance to companies and investors on how to comply with and engage in sustainable finance legislation. Companies are indeed faced with increasing challenges regarding disclosure and reporting requirements, and the package works to address this.
The package consists of:
1. Adoption of the remaining EU Taxonomy non-climate environmental objectives: Sustainable use and protection of water and marine resources; Transition to a circular economy; Pollution prevention and control; Protection and restoration of biodiversity and ecosystems.
- For the building and construction sector, this means that an activity may be assessed under three objectives: climate change mitigation, climate change adaptation or transition to a circular economy objective. Alongside this extension, the Commission have published an EU Taxonomy User Guide to provide support for companies navigating this framework.
- The amendments and extensions to the criteria have been largely informed by recommendations and feedback provided in the public consultation that was launched in April, to which Longevity Partners provided feedback.
2. Guidance on how companies can use sustainable finance to transition to net zero carbon economy
3. Proposed regulation on ESG ratings to increase transparency, comparability, reliability, and oversight of rating agencies operating in the EU
4. FAQ and clarifying resource on new and existing sustainable finance legislation
- Including a confirmation that investments in Taxonomy-aligned ‘environmentally sustainable’ economic activities can be automatically qualified as ‘sustainable investments’ in the context of the product level disclosure requirements under Sustainable Financial Disclosures Regulation (SFDR)
How Longevity Can Help
At Longevity Partners, we believe that regulatory knowledge forms the foundation of any successful sustainability strategy. We use our specialist knowledge of the real estate sector to provide analysis of regulations such as the Corporate Sustainability Reporting Directive and EU Taxonomy, tailored to our clients’ needs.