The EU increases the requirements and urgency for sustainability with new legislative package

8 Oct 2021
By Carina Ohm

Head of Climate Change and Sustainability Services, Partner, EY Denmark

Experienced management consultant with a focus on corporate social responsibility and sustainability, including climate, environment, anti-corruption, human rights and social conditions.

8 Oct 2021
Related topics Sustainability

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.

Summary

With the EU’s new legislative initiatives, the Taxonomy regulation and the Corporate Sustainability Reporting Directive (CSRD), the focus on sustainability is further increasing. Companies as well as auditors already now need to prepare for the increasing requirements related to identification of sustainable activities and assurance. The Taxonomy is entering into force from 2022, while the CSRD is expected to enter into force in 2023.

About this article

By Carina Ohm

Head of Climate Change and Sustainability Services, Partner, EY Denmark

Experienced management consultant with a focus on corporate social responsibility and sustainability, including climate, environment, anti-corruption, human rights and social conditions.

Related topics Sustainability