Climate Change

EU businesses to be required to use “common language” for green investments

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Published

April 27, 2021

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Published:

April 27, 2021

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The European Commission has developed a taxonomy that companies and investors will be required to use when talking about investments in green projects, and is extending the EU sustainability reporting requirements to all large companies and all listed companies. A set of measures proposed this week seeks to introduce reliable and comparable information in corporate sustainability reporting, help re-orient investments towards more sustainable technologies and businesses, prevent greenwashing, and eventually bring sustainability reporting on a par with financial reporting.

The measures are expected to support the implementation of the European Green Deal and be instrumental in achieving the EU’s goal of becoming climate neutral by 2050. The union has recently agreed to make climate neutrality by 2050 a legally binding target.

“Today, we are taking a leap forward with the first-ever climate taxonomy which will help companies and investors to know whether their investments and activities are really green,” Valdis Dombrovskis, the European Commission’s Executive Vice-President for an Economy that Works for People.

The first of the proposals, called the EU Taxonomy Climate Delegated Act, is a science-based transparency tool for companies and investors, which creates a common language for projects and economic activities that have a substantial positive impact on the climate and the environment and makes it clearer which activities most contribute to meeting the EU’s environmental objectives.

The act covers 40% of listed companies in sectors responsible for 80% of the EU’s GHG emissions

The regulation will cover some 40% of listed companies, in sectors which are responsible for almost 80% of direct greenhouse gas emissions (GHG) in Europe, including energy, forestry, manufacturing, transportation, and buildings. The commission said that new sectors and economic activities will be added to the scope as the document evolves in line with developments and technological progress.

Detailed sustainability requirements will apply to nearly 50,000 companies in EU

Under a proposal for a Corporate Sustainability Reporting Directive (CSRD), nearly 50,000 companies in the EU will need to follow detailed EU sustainability reporting standards, up from the 11,000 currently. The commission proposes the development of standards for large companies and separate, proportionate standards for SMEs, which non-listed SMEs can use voluntarily.

The CSRD will also simplify the reporting process for companies, providing a single solution that meets the information needs of investors and other stakeholders, the commission said.

Financial consultants and insurers will be required to include sustainability in their advice to clients

The commission also adopted six amending Delegated Acts aimed at ensuring that financial firms, such as advisers or insurers, include sustainability in their procedures and investment advice to clients. The proposed amendments should encourage the financial system to support businesses on the path towards sustainability, as well as supporting existing sustainable businesses.

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