The EU Taxonomy marks a seismic shift towards mandatory sustainability reporting but offers an opportunity for companies to demonstrate genuine sustainability leadership.
While the period up to 2018 was marked by an absence of ESG and sustainability focused regulatory pressure, in the period since, there have been efforts across the globe to ensure investors, financiers and companies pursue more sustainable business practices. At the forefront of those efforts has been the EU, which is seeking to become the ‘first climate-neutral continent’. A core component of those efforts is the EU Taxonomy (the ‘Taxonomy’), which is part of a suite of wider regulation of market participants, including the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD).
Corporates have, over the past two years in particular, made significant strides to respond to investor and regulatory pressure on ESG reporting. From 2022, however, that pressure is likely to ramp up further, with a number of regulations being adopted or coming into effect. Among them, the Taxonomy will attempt to, for the first time, determine what is and what is not ‘green’. While some companies will remain outside of those designations over the short-term, the Taxonomy is the starting point for the development of the regulatory labelling of businesses – and their activities – as ‘green friendly’ or ‘green hostile’. In the face of what is likely to be an ever-more regulated aspect of corporate reporting, all companies should be looking at these latest steps to evaluate business activities and be prepared to report against more demanding regulations in the period ahead.
As a starting point, we attempt to set out a path for all companies, with activities within or outside of the Taxonomy’s current scope.
To read further, please download the full report.
Authors: Stephane De Maupeou and Joel Kuenzer are based in our Brussels office, and Holly Pettingale and Peter Reilly are based in our Dublin office.