On June 16, 2021, the European Commission introduced the first two environmental objectives for the EU Taxonomy via a delegated act.
Overview
As part of a comprehensive and ambitious package of measures, the European Commission has now adopted two new environmental objectives:
- climate change adaptation
- climate change mitigation
The EU’s aim is to increase the flow of investment money towards sustainable activities across the European Union. These measures will serve the overall goal of achieving a climate-neutral European economy by 2050. Today’s delegated act is setting the course for establishing the EU as a global leader in standards for sustainable finance.
What the package includes
The new package introduced by the European Commission consists of:
- The EU Taxonomy Climate Delegated Act: This act aims to support sustainable investment by making it clearer which economic activities most contribute to meeting the EU's environmental objectives. The College of Commissioners today reached a political agreement on the text. The Delegated Act will be formally adopted at the end of May once translations are available in all EU languages. A Communication, also adopted by the College today, sets out the Commission's approach in more detail.
- Proposal for a Corporate Sustainability Reporting Directive (CSRD): This proposal aims to improve the flow of sustainability information in the corporate world. It will make sustainability reporting by companies more consistent so that financial firms, investors and the broader public can use comparable and reliable sustainability information.
- Six amending Delegated Acts: These focus on fiduciary duties, investment and insurance advice. They will ensure that financial firms, e.g. advisers, asset managers or insurers, include sustainability in their procedures and their investment advice to clients.
In order to reach the EU’s goal of climate neutrality by 2050, companies need a comprehensive sustainability framework to change their business models accordingly. To ensure the transition in finance and prevent greenwashing, all elements of today's package will enhance the reliability and comparability of sustainability information.
EU Taxonomy Climate Delegated Act
The EU Taxonomy is created to serve as a transparency tool for companies and investors. It creates a common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment. It will also introduce disclosure obligations on companies and financial market participants.
The Climate Delegated Act would cover the economic activities of roughly 40% of all listed companies, in sectors that are responsible for almost 80% of direct greenhouse gas emissions in Europe. It includes sectors such as energy, forestry, manufacturing, transport and buildings.
The EU Taxonomy Delegated Act should be seen as a living document that will evolve further over time as new developments and technological progress occur. The criteria will be reviewed regularly. This will ensure that new sectors and activities, including transitional and other enabling activities, can be added to the scope over time.
A new Corporate Sustainability Reporting Directive
Today’s introduced changes revise and strengthen the existing rules of the Non-Financial Reporting Directive (NFRD). The aim is to create a set of rules that will bring sustainability reporting on par with financial reporting.
It will extend the EU's sustainability reporting requirements to all large companies and all listed companies. This means that nearly 50,000 companies in the EU will now need to follow detailed EU sustainability reporting standards. Initially, 11,000 companies were subject to the existing requirements. The European Commission proposes the development of standards for large companies and separate, proportionate standards for SMEs. Non-listed SMEs can use these voluntarily.
Overall, the proposal aims to ensure that companies report reliable and comparable sustainability information needed by investors and other stakeholders. It will ensure a consistent flow of sustainability information through the financial system. Companies will have to report on how sustainability issues, such as climate change, affects their business and the impact of their activities on people and the environment.
The proposal will also simplify the reporting process for companies. Many businesses are currently under pressure to use a wide variety of different sustainability reporting standards and frameworks. The proposed EU sustainability reporting standards can now serve as a “one-stop-shop” that provides companies with a single solution and meets the information needs of investors and other stakeholders.