All 2024 ESG and non-financial reporting regulations in the EU

All 2024 ESG and non-financial reporting regulations in the EU

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Mastering ESG compliance: 2024's essential EU regulations for sustainability and non-financial reporting

With over 2,400 ESG regulations worldwide, it's clear that sustainability reporting is becoming a vital part of corporate compliance. The European Union, in particular, has been at the forefront of this movement, introducing comprehensive ESG regulations that have far-reaching implications for businesses operating within its jurisdiction. For companies looking to stay ahead in 2024, understanding and complying with these regulations is not just about adhering to the law—it's about leading in sustainability, setting the standard for corporate responsibility, and aligning with investor and consumer expectations. 

In this article, we've distilled the most critical ESG and non-financial reporting regulations in the EU to help you navigate this complex landscape. From the Sustainable Finance Disclosure Regulation (SFDR) to the Corporate Sustainability Reporting Directive (CSRD) and the forward-thinking "Fit for 55" package, we provide you with the essential information to comply and excel. Whether you're a financial institution adjusting to new disclosure mandates or a multinational corporation strategising to reduce greenhouse gas emissions, these regulations will shape your sustainability reporting journey in 2024 and beyond. Get ready to embrace a transparent, accountable, and sustainable future.

Essential 2024 EU ESG reporting regulations: What you need to know

2024 is a landmark year, marked by a series of pivotal EU ESG reporting regulations reshaping corporate responsibility and investment reporting practices. Here's a concise overview of the critical policies and directives setting new standards for transparency, accountability, and environmental stewardship across the European Union.

Fundamental EU ESG reporting standards and frameworks 

  • Sustainable Finance Disclosure Regulation (SFDR): This regulation mandates sustainability reporting for investment managers in the EU, aiming to increase transparency in how financial market participants integrate ESG risks into their investment decisions.
  • Corporate Sustainability Reporting Directive (CSRD): Expands sustainability reporting requirements for EU and non-EU companies, enhancing the consistency and comparability of sustainability information.
  • Corporate Sustainability Due Diligence Directive (CSDDD): Companies must identify, prevent, mitigate, and account for adverse sustainability impacts in their operations and value chains.
  • Carbon Border Adjustment Mechanism (CBAM): Introduces a carbon price on certain imports to prevent carbon leakage and encourage cleaner industrial production.
  • EU Taxonomy: Establishes a classification system for environmentally sustainable economic activities, guiding investment towards more sustainable projects.
  • ‘Fit for 55’ Package: A comprehensive plan to reduce EU greenhouse gas (GHG) emissions by at least 55% by 2030, incorporating various legislative measures to support this goal.

Emerging EU sustainability reporting regulations to watch in 2024

  • EU green claims directive: Set out rules to prevent greenwashing by ensuring that environmental claims on products are clear, accurate, and substantiated.
  • EU regulation on deforestation-free products: Imposes strict due diligence obligations on companies importing critical commodities like soy, beef, palm oil, wood, cocoa, and coffee, among others, to verify that these products do not contribute to deforestation or forest degradation, promoting sustainable trade practices. 
  • Revision of EU legislation on packaging and packaging waste: This pivotal update mandates a comprehensive overhaul of packaging standards to enhance recyclability, minimise waste, and foster the adoption of reusable packaging solutions, setting an ambitious target for all EU packaging to be fully recyclable by 2030. 
  • EU "women on boards" directive: Sets a groundbreaking requirement for significant representation of women in leadership, mandating that large, publicly listed EU companies achieve a minimum of 40% female presence in non-executive director roles by June 2026, with flexibility for member states to adjust this target under certain conditions.
  • EU Ecodesign for sustainable products: Updates the Ecodesign Directive to impose stricter requirements on product design for improved environmental sustainability and circularity.

The Corporate Sustainability Reporting Directive (CSRD)

Entered into force in January 2023, the Corporate Sustainability Reporting Directive (CSRD) represents a significant milestone in the European Union's journey toward sustainable economic development. Adopted as a core element of the Sustainable Finance Package on April 21, 2021, the CSRD evolved from the Non-Financial Reporting Directive (NFRD), setting a new standard for transparency and accountability in corporate sustainability reporting. 

With the CSRD, the EU broadens the horizon of corporate responsibility, reaching a more comprehensive array of companies and deepening the scope of reporting:

  • The directive extends to all large companies with over 250 employees, over €50 million in turnover, or over €25 million in total assets.
  • It encompasses listed companies across all EU member states, excluding micro-enterprises, covering a significant portion of the EU market.
  • The CSRD mandates compliance for around 50,000 companies, representing a substantial leap from the coverage under the NFRD.

The core of the CSRD lies in its detailed and robust reporting requirements, aimed at ensuring stakeholders have access to reliable and comparable sustainability information:

  • Environmental impact: Companies must report on their environmental performance, including their energy use, resource consumption, and impact on biodiversity.
  • Social responsibility: The directive calls for disclosures on labour practices, respect for human rights, and community engagement.
  • Governance: Firms must provide insights into their governance structures, particularly how they integrate sustainability into their decision-making processes.
  • Risk management: There is an emphasis on disclosing how businesses identify and address sustainability-related risks and opportunities.

The phased implementation timeline of the CSRD is crucial for companies to note:

  • January 5, 2023: The CSRD officially enters into force.
  • 2024: Companies previously reporting under the NFRD must comply with the CSRD for the first time.
  • 2025 onwards: Gradual expansion of reporting requirements to additional companies and sectors, culminating in comprehensive coverage.

The intersection of the CSRD with other EU regulations, such as the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy, signifies a cohesive approach toward sustainable finance and investment, reinforcing the EU's strategic commitment to sustainability.

For companies, the transition to CSRD compliance represents an opportunity to lead in sustainability, demonstrating a commitment that can resonate with consumers, investors, and partners. It necessitates a proactive approach:

  • Understanding and preparation: Familiarise with the CSRD requirements and assess current reporting processes.
  • Strategic implementation: Develop a plan to integrate the necessary changes into existing frameworks and processes.
  • Continuous improvement: View compliance as an ongoing journey, leveraging the insights gained to drive sustainable business practices and strategic growth.

The CSRD fosters informed decision-making and propels the broader EU agenda for a sustainable and resilient future by providing stakeholders with detailed, reliable insights into corporate sustainability practices.

The Corporate Sustainability Due Diligence Directive (CSDDD)

The European Union continues to promote corporate accountability and sustainability by adopting the Corporate Sustainability Due Diligence Directive (CSDDD). This landmark directive, approved by the EU Council, represents a pivotal step forward in embedding ethical and sustainable practices across corporate activities and supply chains within the EU.

Context and implications

  • Following intense negotiations, the CSDDD received the green light, reflecting the EU's unwavering commitment to human rights and environmental stewardship.
  • Initially proposed to cast a wider net, the directive now sets the compliance threshold at a net worldwide turnover of €450 million, narrowing the scope from about 6,800 to approximately 5,300 companies.
  • This recalibration ensures that while the directive maintains a robust stance on corporate due diligence, it is also pragmatically tailored to impact a specific echelon of enterprises.

Who needs to comply?

  • The CSDDD applies to EU companies exceeding the stipulated financial threshold and non-EU companies with significant operations within the EU.
  • This encompasses entities beyond the threshold size and includes ultimate parent companies of groups, ensuring that the directive's reach is comprehensive yet focused.

Key provisions and requirements

  • The directive eschews a one-size-fits-all approach, removing the emphasis on high-risk sectors to ensure broad applicability across diverse industries.
  • A nuanced definition of the supply chain is adopted, concentrating on direct business relationships and activities, thereby honing in on the most impactful areas of corporate influence.
  • Notably, specific mandates related to climate change plans and the provision for civil claims have been moderated, allowing member states the latitude to tailor enforcement and compliance mechanisms effectively.

The directive introduces a phased timeline, accounting for company size and capacity:

  • Companies with over 5,000 employees and €1,500 million turnover face a three-year compliance timeline.
  • A four-year window is given to entities with over 3,000 employees and a €900 million turnover.
  • Firms exceeding 1,000 employees and €450 million in turnover have five years to align with the directive's stipulations.

The CSDDD is a strategic imperative that aligns with the broader EU agenda for sustainable and responsible business conduct. Companies within the scope are urged to:

  • Conduct thorough due diligence of their operations and supply chains to identify, prevent, and mitigate adverse human rights and environmental impacts.
  • Develop and implement effective and responsive due diligence strategies, incorporating them into their core business processes.
  • Stay current with evolving standards and expectations, leveraging the directive as a framework to foster innovation, enhance sustainability, and build resilient supply chains.

The CSDDD signifies a significant stride in the EU's journey towards a sustainable and equitable corporate world. Setting rigorous due diligence requirements encourages companies to proactively address their environmental and social footprints, contributing to a more responsible and sustainable global economy.

The Carbon Border Adjustment Mechanism (CBAM)

Initiated as part of the EU's ambitious 'Fit for 55' climate package, the Carbon Border Adjustment Mechanism (CBAM) took effect on May 17, 2023. The CBAM is a landmark initiative within the European Union's comprehensive strategy to reduce greenhouse gas emissions, ensuring domestic and imported goods have the exact carbon costs. It directly responds to the global challenge of carbon leakage and the EU's aim to achieve climate neutrality by 2050.

Carbon leakage describes the scenario where companies might relocate production to countries with looser emission restrictions due to the costs imposed by climate policies, potentially leading to increased overall emissions. By equalising the carbon price between EU products and imports, CBAM aims to prevent this shift, ensuring that stringent climate actions don't result in simply moving emissions outside the EU.

CBAM expands the scope of EU climate policy, imposing new standards for international trade:

  • The mechanism applies to importers of certain carbon-intensive goods, like iron, steel, cement, aluminium, fertilisers, and electricity.
  • It encompasses foreign companies exporting to the EU that operate in regions without carbon pricing systems equivalent to the EU's.

CBAM is built on a foundation of clear and actionable requirements:

  • Carbon pricing alignment: Importers must purchase CBAM certificates corresponding to the carbon price within the EU Emissions Trading System (ETS).
  • Data collection and reporting: Starting in October 2023, companies must meticulously track the embedded emissions of imported products, setting the stage for full compliance by 2026.

CBAM's phased rollout is critical for businesses to understand:

  • 2023-2025: Transitional phase for companies to adjust and prepare for CBAM's full implementation.
  • 2026: CBAM is in full effect, with a phased tariff introduction reaching total capacity by 2034.

The integration of CBAM with the broader EU regulatory framework, including the EU ETS and the European Green Deal, underscores a united front in pursuing global sustainability.

The shift towards CBAM compliance offers businesses the chance to pioneer in sustainability, showcasing a commitment to environmental stewardship that is increasingly valued by consumers, investors, and partners worldwide. It requires a diligent and strategic approach:

  • Proactive approach: Companies must familiarise themselves with CBAM's intricacies and integrate them into their operational strategies. 
  • Strategic adaptation: Developing frameworks and processes to meet CBAM's requirements will be essential for continued access to the EU market. 
  • Sustainable growth: Viewing CBAM as a catalyst for growth, businesses can leverage compliance to boost their sustainability credentials and gain a competitive edge.

The CBAM is a pivotal mechanism in the EU's arsenal against climate change, designed to prevent carbon leakage and foster a globally equitable approach to carbon pricing. Enforcing a level playing field, it incentivises businesses worldwide to invest in cleaner production methods and supports the EU's vision for a sustainable economic future.

The EU Taxonomy Regulation

As the European Union continues its journey towards a sustainable future, the EU Taxonomy emerges as a pivotal framework for defining and promoting sustainable economic activities. Launched with the EU’s ‘Fit for 55’ climate targets, the EU Taxonomy is part of the broader Sustainable Finance Package aimed at redirecting capital flows toward sustainable investments.

The EU Taxonomy is a classification system designed to assess the environmental sustainability of economic activities based on six key objectives, including climate change mitigation and adaptation. It supports companies and investors in determining which activities can be considered environmentally sustainable, promoting transparency in sustainable investment decisions.

The EU Taxonomy mandates the following entities

  • Applicable to financial market participants and large companies under the SFDR, NFRD, and the amended CSRD/NFRD scope.
  • Financial entities will report on the Taxonomy alignment of financial products. 
  • At the same time, non-EU and EU companies with significant European revenues and/or securities listed on EU markets must also comply.

The EU Taxonomy is built on the following timeline:

  • January 2022: Entities began disclosing the proportion of their eligible activities under the EU Taxonomy. 
  • January 2024: Entities must report aligning their activities with the Taxonomy objectives.
  •  2025: Financial entities must include Taxonomy alignment in their non-financial statements per CSRD regulations. 
  • A gradual rollout for implementation has been set, with initial disclosures on Taxonomy eligibility starting in 2022. By 2025, entities will report on their Taxonomy-aligned activities' share of turnover, CapEx, and OpEx within their CSRD non-financial reports.

For businesses, adapting to the EU Taxonomy necessitates a thorough understanding of its criteria and a strategic integration into their existing operational frameworks. Companies must:

  • Engage with the criteria: Delve into the Taxonomy’s requirements and evaluate how they apply to their operations. 
  • Plan for integration: Develop strategies to embed Taxonomy criteria into their business models and reporting. 
  • Embrace continuous evolution: Anticipate future changes and refine their practices to align with the EU’s sustainability goals.

The EU Taxonomy is the compass for sustainable finance, guiding companies and investors towards environmentally beneficial activities. Its structured approach and transparent criteria are fundamental to Europe's transition to a greener economy and a testament to the EU's commitment to a sustainable economic future.

Learn more about the EU Taxonomy with Plan A’s Whitepaper. 

The Sustainable Finance Disclosure Regulation (SFDR)

The Sustainable Finance Disclosure Regulation (SFDR), which took effect in March 2021, represents a significant step in the EU's initiative to inject transparency into the financial market's approach to Environmental, Social, and Governance (ESG) factors. 

Part of the EU's Sustainable Finance Package, SFDR creates a standardised framework for reporting ESG considerations, ensuring that financial market participants and financial advisers across Europe—and those non-EU entities engaging with EU markets—disclose how sustainability risks are integrated into their investment decisions.

SFDR casts a wide net, encompassing investment firms, pension funds, insurance companies, banks, and more, emphasising transparency that extends from organisational strategies to individual financial products. Larger firms must publish detailed reports on considering the principal adverse impacts of their investment decisions. In comparison, smaller firms are offered flexibility to comply or explain their approach.

The regulation's phased implementation began in March 2021, with entities required to make initial disclosures on how they integrate sustainability risks into their decision-making processes. From there, the SFDR establishes a rhythm of annual reporting, with key sustainability risk policies and adverse impact statements due by the end of June each year.

The SFDR complements other critical regulations like the CSRD and EU Taxonomy, ensuring consistency in the EU's sustainable finance regime.

Introducing SFDR is both a challenge and an opportunity for the financial sector. Companies within its scope must adopt a proactive approach:

  • Understanding and preparation: Entities must thoroughly comprehend SFDR requirements to evaluate and adapt their reporting processes. 
  • Strategic execution: A plan to integrate SFDR disclosures into existing operations and reporting frameworks is essential. 
  • Ongoing enhancement: Viewing SFDR as a catalyst for continuous ESG-oriented improvement, aligning investment strategies with sustainable growth.

By mandating clear, comparable insights into how financial institutions and products handle ESG risks and impacts, the SFDR aims to empower investors with the knowledge they need to make informed decisions, fostering a more resilient and environmentally conscious financial market.

‘Fit for 55’ and the EU's Sustainable Finance Plan: Navigating the future of green legislation

The European Union has embarked on an ambitious journey to redefine its climate and financial landscape, notably through the "Fit for 55" legislative package and the comprehensive Sustainable Finance Plan. These initiatives represent the EU's strategic commitment to integrate sustainability into every facet of its economy, setting a new precedent for corporate environmental responsibility.

Understanding 'Fit for 55'

'Fit for 55' is the EU's legislative blueprint aiming for a 55% reduction in greenhouse gas emissions by 2030, aligning with the objectives in the new European Climate Law of June 2021. It's a multi-sectoral overhaul involving expanding existing laws and the introduction of new directives that touch upon climate, energy, transport, buildings, and land use. Here's what to remember:

  • Expansion of Emission Trade System (ETS): Building on the successes of the EU ETS, "Fit for 55" proposes extending carbon pricing to new sectors, including maritime and, gradually, road transport and buildings, starting in 2026.
  • Carbon Border Adjustment Mechanism (CBAM): To mitigate the risk of carbon leakage, CBAM will levy a carbon price on certain imports, ensuring they carry costs similar to EU products.
  • Social climate fund: This initiative aims to support vulnerable groups affected by the policy changes through a €72.2 billion fund, easing the transition to a green economy.

While the proposals are still under negotiation and must undergo a two-year legislative process, companies should anticipate most measures to come into force from 2025-2026.

EU's Sustainable Finance Plan

Launched in July 2021, the EU’s Sustainable Finance Plan outlines six actions under the "Strategy for Financing the Transition to a Sustainable Economy," such as extending sustainable finance tools and developing international sustainable finance standards. Key components include:

  • European Green Bond Standard (EUGBS): A voluntary standard to assist issuers in showcasing legitimate green projects, minimising the risk of greenwashing.
  • Amendment to the EU Taxonomy: Clarifies disclosures required by large companies on how their business aligns with environmentally sustainable activities.

Impact on companies and financial institutions

The 'Fit for 55' package requires companies, especially those in carbon-intensive sectors, to reevaluate and modify their operations to align with stricter emission targets. On the other hand, the Sustainable Finance Plan, including the European green bond standard (EUGBS) and the EU Taxonomy amendment, will reshape how financial products are labelled as 'green' and how companies report on sustainability, setting a higher bar for environmental accountability.

For companies operating within the EU, this underscores the importance of:

  • Proactive compliance: Staying abreast of the latest legislative developments to ensure readiness for upcoming changes.
  • Strategic planning: Aligning business models and investment strategies with the EU’s enhanced sustainability criteria.

The "Fit for 55" package and the EU's Sustainable Finance Plan are regulatory frameworks and catalysers of a European decarbonised economy. Companies and financial institutions must take decisive action to adapt to these changes, solidifying their roles as leaders in the global transition towards sustainability.

Staying up-to-date on the EU's ESG and non-financial reporting regulations for 2024 is crucial for ensuring compliance and demonstrating your commitment to sustainability. As these regulations evolve, it's vital to have a reliable source for the latest updates and insights.

Visit our Regulations Centre for ongoing ESG regulations updates and to ensure your organisation remains compliant and competitive. To navigate this complex landscape, book a demo with Plan A today for seamless ESG reporting compliance.

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