On 21 April, the European Commission published a new legislative proposal to regulate and improve the flow of money towards sustainable business in the EU. With the publication of the proposal for regulation on Artificial Intelligence and the agreement reached by European Parliament and Council on the Climate Law on the same day, the new Sustainable Finance Package comes in a timely manner to lay down the EU plans for global leadership in the twin digital and sustainable transitions.
The package implements the 2018 Sustainable Finance Action Plan and will be a fundamental instrument in achieving the EU climate targets. The Commission’s proposal consists of three main actions:
The EU Taxonomy Climate Delegated Act, which aims to support sustainable investment by classifying sustainable economic practices and assessing how they contribute to meeting the EU’s environmental objectives, most notably climate change adaptation and climate change mitigation. These principles will allow business opportunities in green projects and sustainable technologies, with the aim of orienting investments towards the transition to sustainability and digitalisation. The Delegated Act will be formally adopted at the end of May once translations are available in all EU languages, and then reviewed by European Parliament and Council. The Delegated Act will apply from 1 January 2022.
A Corporate Sustainability Reporting Directive (CSRD) proposal, which aims at updating the Non-Financial Reporting Directive in order to increase the amount of information being reported by companies. The CSRD proposal aims to make Corporate Sustainability Reporting more consistent so that investors, banks, financial firms and the broader public can use comparable and reliable sustainability information. Current EU sustainability reporting obligations under the Non-Financial Reporting Directive (NFRD) are expanded from large-listed companies to include large non-listed companies and listed Small and Medium Enterprises (SMEs). Listed SMEs will be subject to lighter reporting obligations than large companies. Non-listed SMEs will be able to use EU Sustainability Reporting Standards on a voluntary basis. The European Parliament and Council will begin discussions on the files soon. If an inter-institutional agreement is found and the Directive is published by end of 2022, companies would apply the standards for the first time to reports published in 2024, covering financial year 2023.
Six amending Delegated Acts on fiduciary duties, investments and insurance advice, which target financial assistance towards sustainable business. The delegated acts enable advisers, asset managers and insurers to support companies in taking up sustainable investments, while contributing to combating greenwashing and allowing retail investors to decide when and how their funds will be allotted. The delegates acts will be reviewed by European Parliament and Council and will apply from October 2022. The complete list of al delegates acts can be found here.
The overall benefit brought by the Sustainable Finance Package can be identified in the focus of direct investments on sustainable technologies and green projects. It will be important to monitor the impact on SMEs and facilitate the reporting duties for smaller companies. Sustainability information will be incorporated in the European Single Access Point envisaged in the Capital Markets Union Action Plan, which the Commission will translate into a proposal later this year. Digitalisation of companies’ sustainability reporting is also in line with the Digital Finance Strategy, which aims at giving consumers access to innovative financial products, while ensuring consumer protection and financial stability. The full financial sector is mobilised to ensure that companies are provided with the right assistance and tools to attract green investments.