July 20

Emerging EU ESG Requirements: Transatlantic Implications for Multinational Companies

We have written extensively on the US Securities and Exchange Commission (SEC) proposal to require that public companies disclose climate-related information and other environment, social, and corporate governance (ESG) trends. However, the European Union (EU) is at the vanguard of emerging requirements focused on climate-related information and broader ESG-aligned information.

Recent and forthcoming regulatory developments will have significant implications not just for EU-based companies but for those beyond, as well. Late last month, the European Parliament and Council of the EU announced they have reached political agreement to move forward with and expand applicability of a proposed measure that would require corporate sustainability reporting from a vastly increased number of companies. This change and others could have important impacts on businesses that merit close attention, including by non-EU companies. This post is meant to provide a quick primer on the EU’s array of trending ESG efforts and preview what additional requirements are expected in the future.

The EU ESG efforts dovetail with its mission to deliver on the European Green Deal, the aggressive, whole-economy approach to make Europe the first carbon neutral continent on the globe by 2050, and its intermediate goal of reducing greenhouse gas (GHG) emissions by at least 55 percent compared with 1990 levels by 2030, codified in the European Climate Law. The EU believes sustainable finance is a key component of its ability to achieve these targets. The “sustainable finance” framework encompasses a range of initiatives aimed at harnessing investment toward a clean economy, including:

  • The Taxonomy Regulation establishes a classification system indicating which economic activities, across a wide range of industries, are environmentally sustainable. Whether an activity is identified as sustainable depends on whether it makes a “substantial contribution” and does “no significant harm” to a series of environmental objectives, as well as meet certain minimum social safeguards and technical screening criteria.
  • The Sustainable Finance Disclosure Regulation (SFDR) imposes ESG disclosure requirements on financial market participants and products in the EU, aimed at protecting investors from greenwashing concerns.
  • The Corporate Sustainability Reporting Directive (CSRD), a successor to and expansion of earlier corporate disclosure requirements, will require many large companies and companies with securities listed on EU-regulated markets to disclose a broad array of information under the E, S, and G pillars.
  • The Green Bond Standard encourages the issuance of and investment in green bonds to help finance Europe’s low carbon transition by setting a voluntary standard for green bonds to ensure sustainability and investor protections.

Source: The National Law Review (link opens in a new window)

Impact Assessment
climate change, ESG, governance