With the Taxonomy and CSRD, the expectations and requirements for companies’ non-financial reporting are on a steep rise.
EY and Dansk Erhverv hosted this first annual Sustainability Awards in Copenhagen, acknowledging companies which work with sustainability in innovative, strategic and integrated ways across their business models. This follows the increasing focus on sustainability on the societal and political agenda, as well as among companies, such as Rockwool, DSV and Ege Carpets, which all brought home awards for their sustainability efforts. While some companies are pioneering the field, many challenges still lie ahead, as new standards, regulations and increased expectations for data accuracy and transparency are putting demands on how companies must approach sustainability going forward. Particularly the regulatory field is facing significant change with new EU regulation tightening the requirements and expectations for companies’ approach to sustainability.
The currently most important regulatory initiatives are the EU Commission’s Taxonomy Regulation and the Corporate Sustainability Reporting Directive (CSRD). As part of the action plans to achieve the EU’s sustainability ambitions, the overall purpose of the new regulation is to direct investments towards sustainable activities. It will set forth comprehensive requirements for companies’ sustainability reporting in the coming years.
Download CSRD overview
The EU taxonomy is a classification system for sustainable activities, based on six environmental objectives, set to serve companies, investors and issuers. So far, the Taxonomy Regulation covers 13 sectors and includes disclosure requirements for listed companies and financial market participants. Already from 2022, companies must disclose how and to what extent their business activities are aligned with the Taxonomy Regulation, qualitatively and through a number of related KPIs.
CSRD will replace the Non-Financial Reporting Directive (NFRD). The directive is expected to enter into force in 2023 and is expected to include mandatory limited assurance of sustainability data and reporting on mandatory qualitative and quantitative indicators. This marks a steep change in the scope and content of disclosure requirements, which companies should already now begin to prepare for.
Clearly, the focus on sustainability is only set to grow in the coming years. In preparation for the new regulatory requirements, companies must especially already now work to ensure robust ESG data. Further, companies will need to evaluate whether their goal simply is to follow minimum standards, or whether they will use these developments to drive innovation and their competitive advantage. More than ever, there is a clear case for companies to leverage the developments and use them strategically to mitigate sustainability risks and create new opportunities for long-term value creation.