EU Commission Launches Sustainable Finance Measures Empowering Business Transition to Sustainability
On 13 June 2023, the European Commission took a significant step towards strengthening the EU's sustainable finance framework with a new package of measures. The document introduces a range of measures aimed at promoting the usability of current tools and a more accessible and supportive environment for companies looking to invest in the green and digital transition.
At the core of this package are two highly anticipated pieces of legislation. The first is the EU Taxonomy's new Environmental Delegated Act. The Delegated Act sets out crucial technical screening criteria for the four other environmental objectives of the Taxonomy Regulation:
Sustainable use and protection of water and marine resources
Transition to a circular economy
Pollution prevention and control
Protection and restoration of biodiversity and ecosystems
To enhance transparency and coherence in the identification of sustainable investments, the delegated act also encompasses amendments to existing legislation, such as the Disclosures Delegated Act and the Climate Delegated Act. Concerning the latter, updates have expanded the scope of activities in the manufacturing and transportation sectors, in relation to climate change mitigation and adaptation.
With the European Commission's adoption of the Delegated Acts, a four-month scrutiny period - extendable by two months - commences, during which the European Parliament and the EU Council may voice objections. If no objection is raised, the Delegated Acts come into force after their publication in the Official Journal of the European Union.
The newly adopted delegated acts will require companies to mandatory reports from 2024 (on FY2023). A different timeline is instead applicable to in-scope financial institutions, which will have to report on the Taxonomy-eligibility of their exposures to the newly covered activities from 1 January 2024 and on their Taxonomy alignment starting 1 January 2026.
The second key legislation included in the Sustainable Finance Package is the Proposal for a Regulation on ESG Ratings. This proposal seeks to enhance the reliability of Environmental, Social, and Governance (ESG) ratings by improving the transparency of methodologies used in rating assessments. By ensuring increased integrity of operations, this regulation aims to foster trust and confidence in ESG ratings, enabling investors to make informed decisions regarding sustainability performance.
What is the impact of the EU Taxonomy on the financial market?
This year's corporate reporting already showcases promising signs of the EU Taxonomy's growing prominence. As of May 2023, a staggering 63% of companies listed in the STOXX Europe 600 have disclosed their taxonomy figures. Among these companies, 30% have demonstrated varying degrees of alignment with the taxonomy. On average, their alignment stands at around 17% for revenue, 23% for Capital Expenditure (CapEx), and 24% for Operational Expenditure (OpEx).
Companies are increasingly utilizing the EU Taxonomy to signal their sustainability efforts and performance. As businesses embrace this new paradigm, remarkable opportunities await to drive positive environmental impact while securing financial success.
For more information:
Contact Ilaria Orsi,
Markets Project Manager