January 16, 2024
As we embrace the transformative year of 2024, our article unveils the evolving landscape of ESG regulations in Europe. From SFDR to groundbreaking directives, we explore key developments shaping corporate responsibility.
Sustainability reporting regulations, known as 'ESG regulations,' are evolving globally for more consistent and transparent disclosure. In 2024, the EU and the US are driving efforts for standardized ESG data collection and reporting. After a significant year in 2023 for sustainability standards, 2024 will prioritize implementation. Navigating through the regulatory landscape, with acronyms like SFDR, CSDR, NFRD, can be overwhelming. To help, here's a concise overview of key ESG regulations in Europe for 2024, enabling businesses to stay compliant and contribute to sustainability goals.
1. Sustainable Finance Disclosure Regulation (SFDR)
The EU has put in place a transparency framework, The SFDR, effective since March 2021 and mandatory since January 1st, 2023. It combats 'greenwashing,' aiming to prevent misleading environmental claims and promote investment in sustainable products for a low-carbon economy.
2. Corporate Sustainability Due Diligence Directive (CSDDD)
The CSDDD, a groundbreaking EU initiative, mandates large corporations to identify, prevent, and account for negative human rights and environmental impacts throughout their operations and supply chains. Going beyond first-tier suppliers, this directive signifies a significant stride in global sustainability and ethical corporate practices. Companies must conduct due diligence on their activities, subsidiaries, and value-chain operations associated with their business relationships. The CSDDD is expected to be finalized in 2024.
3. Corporate Sustainability Reporting Directive (CSRD)
The European Sustainability Reporting Standards (ESRS) are now being implemented by the first wave of companies under the Corporate Sustainability Reporting Directive (CSRD). Large and listed companies within the EU are required to disclose comprehensive information on Environmental, Social, and Governance (ESG) practices, emphasizing impacts on people and the environment.
4. EU Taxonomy
The EU taxonomy is a fundamental component of the EU's sustainable finance framework, serving as a key transparency tool in the market. Aligned with the European Green Deal objectives, it directs investments toward activities crucial for the transition to a net-zero economy by 2050.
5. German Supply Chain Due Diligence Act (SCDDA)
Germany's Supply Chain Due Diligence Act (SCDDA) compels large companies with ties to Germany to enforce social and environmental standards in their global supply chain. The law, applicable to enterprises with over 1,000 employees in Germany or German-registered branches of foreign companies from January 1, 2024, introduces strict obligations, including risk management, preventive measures, and mandatory complaint procedures.
6. EU Deforestation Law (EUDR)
The EU Deforestation Law targets the EU's role in global deforestation by imposing strict due diligence rules on companies dealing with commodities like cattle, cocoa, coffee, oil palm, soya, wood, and rubber. Companies have until December 2024 to adjust to the new rules.
1. Sustainability Disclosure Requirements (SDR)
The UK's Sustainability Disclosure Requirements (SDR) mark a significant step in sustainable finance and corporate responsibility. This regulatory framework mandates companies and financial institutions to disclose their environmental and social impacts. The SDR includes formal product labels, sets minimum standards for labeled and ESG-related products, and addresses greenwashing concerns. The Financial Conduct Authority (FCA) closed consultation on the SDR in January 2023, aiming to enhance trust and transparency in sustainable investments. It introduces four labels for financial products and an anti-greenwashing rule, offering common standards and terminology for improved clarity in sustainable finance.
2. Development of a UK Green Taxonomy
The UK Green Taxonomy aims to enhance understanding of firms' environmental impact and support the country's shift towards a sustainable economy. It serves as a framework for the Sustainability Disclosure Requirements, defining criteria for 'green' activities or products. The anticipated consultation in 2024 will further shape and establish criteria for economic activities to be deemed environmentally sustainable.
3. Streamlined Energy and Carbon Reporting (SECR)
Streamlined Energy and Carbon Reporting (SECR) is mandatory for large UK organizations, assessing both greenhouse gas emissions and energy efficiency efforts. It promotes transparency, cost savings, and emission reductions, requiring a narrative, methodology, and intensity ratio in reporting. All large organizations, including quoted companies on the London Stock Exchange, must comply, aiming to expand reporting and encourage energy efficiency initiatives.
1. Code of Obligations – Non-financial Reporting
Swiss regulations mandate 'public interest companies' to prepare non-financial reports, addressing environmental issues, CO2 targets, social matters, personnel issues, human rights, and anti-corruption efforts. Starting in 2024, these companies will issue their first non-financial reports, covering the 2023 financial year.
2. Code of Obligations – Climate Reporting
Under the Swiss Code of Obligations, the Ordinance on Climate Disclosures mandates companies, particularly public companies, banks, and insurance firms with 500+ employees or specific financial thresholds, to report on the impact of climate change on their operations and their contribution to climate change (double materiality). The ordinance comes into effect on January 1, 2024.
Navigating the complex landscape of ESG regulations is crucial for businesses striving towards sustainability. inoqo stands ready to assist you with your company's ESG reporting needs. With our expertise, we can guide you through the intricacies of compliance, ensuring transparency and contributing to your journey towards a more sustainable future. Send us an email at firstname.lastname@example.org for a free assessment.
January 16, 2024