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Sustainability Reporting



Kirjoittanut: Kamil Wójcik - tiimistä FLIP Solutions.

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A brief view of how the European Union implements sustainability into the core of the businesses through new laws and regulations.

The current climate change crisis and biodiversity loss are existential threats to humankind. To fight these challenges EU created the European Green Deal. The aim of the deal is to transform the EU into a modern, competitive and resource-efficient economy while ensuring:

  • NET ZERO by 2050 with the mid deadline to reduce emissions by 55% by 2030 compared to 1990
  • economic growth decoupled from resource use
  • equality and inclusion for everyone and all places

It’s worth highlighting that the EU sees this plan as the way out of the pandemic. Personally, I believe that it is a good time to get society on board, as the pandemic proved to be a time of reflection for many. As an individual I cannot live the same way as my parents did, I must consider how my own actions influence the future and adjust them. As awareness rises, old-fashioned capitalism is closer to the edge. Why not reflect on the government level and look into the future? EU is on it and The European Green Deal is mostly financed from the EU’s budget.

To ensure that these are not empty promises and that the change will actually take place, the EU created taxonomy. Taxonomy is the science of naming, describing and classifying. The EU taxonomy creates a common language and clear science-based definitions of what it takes for business activities to substantially contribute to the green transition, and thereby be considered sustainable.

source: https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en

Other actions taken by the EU are two directives that attempt to bring more transparency to companies’ activities. Non-financial reporting directive from 2018 aims to:

  • The first is to provide information to enable investors and stakeholders to make better assessments of a company’s non-financial activities in relation to their overall risks and value creation.
  • The second is to influence companies to establish more effective practices in the area of social and environmental management, and therefore incorporate a more ‘responsible’ business mindset.

The NFRD supports the Taxonomy and the other way around. Companies required to comply with the NFRD must follow the rules of the Taxonomy. While the first requires companies to open up the turnover, and how money is spent and allocated in regard to sustainability. the latter sets the standards and rules for which activities can be considered sustainable. Both together also specify how to measure and share the impact of these activities.

That’s a good start, but many issues quickly arose. One of the key concerns is how the EU assures companies across Europe interpret the rules in the same way, are the measurements effective and do we measure the right indicators? Different arguments came up, for example, the Green Peace argues that offsetting carbon emissions is just a bookkeeper’s trick to balance the results. Greenwashing is common practice as we hear time after time scandals coming up from the major companies. An example from the clothing industry that recently came up on social media. H&M knows how to go around the rules and time after time is accused of greenwashing. Reels below sum it up well.

The age-old problem of law vs morality, or as some could claim misinterpretation of the rules. The EU decided to go forward and clarify these rules. Currently, in progress, the Corporate Sustainability Reporting Directive is the answer.

source: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en

The application of the regulation will take place in three stages:

1st of January 2024: for companies already subject to the Non-Financial Reporting Directive. The first report in 2025.

1st of January 2025: for all large companies that are not presently subject to the Non-Financial Reporting Directive (NFRD). The first report in 2026.

1st of January 2026: for listed SMEs, small and non-complex credit institutions and captive insurance undertakings. The first report in 2027.

With the new directive, the EU hopes to improve and eliminate the lack of reliability and relevance of non-financial information provided by companies. CSRD will also provide a base for a common standard for reporting while the scope of the reporting will be expanded. Under the new directive, all reports will be open to the public as well as checked by the third-party company. That will limit possibilities of greenwashing and push – in many cases newly established – sustainability departments to change the direction of the company towards a more circular and resource-efficient economy.

Sources:

https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en

https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en

Dynamic and entrepreneurial developer of new ideas. Focus on coaching and sustainable development.

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