The EU has led the world in ESG adoption, with strides in legislature and sustainable investment.
However, ESG activity in Europe has exploded recently. In the month of May alone the EU has released plans for a $315 billion clean energy plan, developed extensive sustainability reporting standards and seen a parliament-led push to weed out greenwashing.
We delve into what’s been happening this past month.
EFRAG released draft reporting standards for the upcoming Corporate Sustainability Reporting Directive
Last year the European Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD). The CSRD is intended to replace Europe’s current, outdated sustainability reporting framework, the Non-Financial Reporting Directive (NFRD).
The Commission mandated the European Financial Reporting Advisory Group (EFRAG) develop new European Sustainability Reporting Standards (ESRS) to be used in the CSRD.
This month EFRAG released these standards in a series of exposure drafts. The proposed rules will require companies to increase the breadth and detail of the sustainability-related information they include in several reporting areas, including:
- Materiality assessment of company impacts, risks and opportunities.
- Strategy and business model.
- Governance and organisation.
- Implementation measures, covering targets, action plans, resource allocation and performance measures.
A wide range of ESG disclosure topics are covered in the exposure drafts under environmental, social and governance banners.
| Environment | Social | Governance |
|---|---|---|
| – Climate change – Pollution – Water and marine resources – Biodiversity and ecosystems – Resource use and the circular economy | – Own workforce – Workers in the value chain – Affected communities – Consumers and end users | – Governance, risk management and internal controls – Business conduct |
The increased scope of the newly proposed EU reporting standards will increase the number of companies required to provide these disclosures from 12 000 to 50 000.
EFRAG announced a 100 day public consultation period to receive feedback on the exposure drafts with a deadline of 8 August 2022. If passed, the proposed EU reporting standards could come into effect as early as the end of 2022.
Members of the EU Parliament focus on weeding out greenwashing with a push for tougher regulation of European Green Bonds
With the EU Council approving the European Green Bond (EuGB) regulation proposal last month, the final version of the text is being hashed out with parliament.
Last week, the EU Parliament’s Economic and Monetary Affairs Committee formalised their position on the current proposal by suggesting numerous amendments. The changes advocate for rigorous transparency requirements and stringent regulation of all bonds marketed under the EuGB label. Designed to deter greenwashing, the proposed amendments require:
- EuGBs align with environmentally sustainable economic activities set out in EU taxonomy legislation.
- All EuGBs should have verified transition plans.
- EuGB issuers must have provisions in place to ensure they do not harm people or the planet.
- Issuers from countries on the EU’s tax haven blacklist cannot participate.
- External reviewers of the EuGB standard have fewer conflicts of interest.
- Investors have legal recourse if green bonds depreciate due to an issuer’s failure to comply.
- A transparency statement on the front page of EuGB factsheets for issuers who intend to allocate money towards nuclear energy and fossil gas related activities.
Member of EU Parliament Paul Tang, responsible for preparing the amendment document said:
“We are serious about ending greenwashing. When this regulation becomes law, simply saying your firm’s bond is green will no longer be good enough.”
Paul Tang – Member of EU Parliament
Learn more about European Green Bonds in the video below:
REPowerEU: The European Commission introduces green energy transition plan to reduce dependence on Russian fossil fuels
Prompted by Russia’s invasion of Ukraine, the European Commission unveiled its REPowerEU plan last week to accelerate its transition to green energy and gain independence from Russian fossil fuels.
Currently, Russia supplies 40% of the EU’s gas and recently cut-off supplies to Poland and Bulgaria, increasing fears around energy instability, economic output and inflation.
Geopolitical tensions have intrinsically linked the EU’s sustainability and security agendas, with colossal amounts of renewable power at the core of both. The Commission aims to slash consumption of Russian gas by 66% by the end of 2022 and cease its dependence altogether by 2027.
If adopted, the union will invest $315 billion ($210 billion euros) into clean energy investments by 2027.
The Commission laid out a three-pronged strategy comprising of short and long-term actions:
- Energy saving campaign: regions are to engage citizens and industry in reducing energy consumption, pledge savings targets and launch support schemes.
- Diversify energy sources: the EU plans to source gas from other global suppliers in the short-term whilst using existing gas terminals for renewable gas deliveries, such as hydrogen, in the future.
- Accelerating the clean energy transition with investments into renewable energy: the EU has made ambitious amendments to its clean energy targets, including:
- Doubling EU’s capacity for solar power by 2025.
- Double its amount of heat pumps over the next 5 years – renewable powered infrastructure which funnels heat from the ground or air into buildings.
- A target to produce and import 10 million metric tonnes of renewable hydrogen by 2030.
- Increase its Renewable Energy Directive from 40% by 2030 to 45%.
- A target to produce 35 billion cubic metres of biomethane by 2030.
Kadri Simson, European Commissioner for Energy, said:
“We recognise that untying Europe from its largest energy supplier is going to be difficult. But the economic benefits of ending our dependency will be much greater than the short-term cost of REPowerEU. And in this way, we will build faster a more secure, sustainable and affordable energy system for the EU and for our citizens.”
Kadri Simson – European Commissioner for Energy
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