The European Commission has released new measures in the sustainable finance framework to make it easier for companies to meet their ESG commitments.   

The European Commission (EC) has some lofty goals, not least of which is the pledge to transition to a climate-neutral and sustainable economy by the year 2050. Companies and investors all over Europe are following this trend, and many are already making solid moves toward a transition.

EASIER SAID THAN DONE

Whilst the will is there, the way has been a bit more complicated with investors and businesses finding it difficult to comply with the EU’s tough regulations, notably when it comes to compliance to disclosure and reporting requirements. In order to cut through the red tape and to make the path to transitioning clearer, they have made some changes.

Specifically, the Commission is “adding additional activities to the EU Taxonomy and proposing new rules for Environmental, Social and Governance (ESG) rating providers, which will increase transparency on the market for sustainable investments”.

The package’s goal is to see a sustainable finance framework that works for companies that want to invest in sustainability. It also aims to make the sustainable finance framework easier to use, so both sides can effectively contribute to the European Green Deal objectives.

WHAT’S NEW?

The EU Taxonomy, a system for companies to identify environmentally sustainable economic activities and investments, now has new criteria including sustainable use and protection of water and marine resources, transitions to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.

They have also added amendments which expand on activities that lessen climate change and environmental impact, primarily in the manufacturing and transportation sectors, allowing for increased usability, with the idea this will lead to more investment.

Finally, it is cleaning up the ESG ratings system, which currently is less-than-transparent, by introducing new organisational principles and rules to prevent conflicts of interest. This, they hope, will increase the integrity of the ESG ratings providers.

The EC will be publishing an easy-to-understand EU Taxonomy User Guide as a tool for businesses and investors who have found the previously labyrinthine system unwieldly, laying out all the rules clearly to help make the transition to sustainability and environmentally-friendly methods of operation easier.

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