The regulatory ESG framework relating to sustainable finance, sustainable insurance and non-financial reporting is developing at rapid pace. The European Commission has designated the transition towards a sustainable net-zero economy a key priority and is pushing ahead with a number of legislative initiatives that will make Environmental, Social and Governance policies (ESG) a crucial regulatory topic for months and years to come. A few key initiatives are discussed below in further detail.
More stringent rules on non-financial reporting
In April 2021, the European Commission launched a proposal for a Corporate Sustainability Reporting Directive (CSRD) to replace the existing Non-Financial Reporting Directive (NFRD). With this ambitious set of measures, Europe aims to make ESG reporting more transparent to increase sustainable investment in Europe. The introduction of the CSRD will cause a significant shift in the European reporting landscape. The way the proposal is currently drafted, the CSRD will come into force as of the 2023 financial year.
The CSRD will cover not only public interest organizations but also large, unlisted companies. In Belgium, we expect the number of companies in scope of the CSRD to be ten times higher than under the current NFRD. The reporting requirements will also become more extensive and stringent and will require companies to meet more rigorous standards, including reporting in accordance with the EU Sustainability Reporting Standards.
Introducing companies to the EU Taxonomy to report on sustainable economic activities
In addition, the EU Taxonomy Regulation is being further developed with a classification system that allows companies and financial market participants to identify sustainable economic activities. Until now, nobody could define exactly what was sustainable and what was not, sometimes leading to initiatives that were sustainable in name only.
The EU Taxonomy is a science-based classification of economic activities that contribute to ESG objectives. The classification is part of the reporting requirements for companies that fall under the scope of the NFRD - and soon under the CSRD as well. The EU Taxonomy comes into effect as of January 2022, and already covers the 2021 financial year. Fortunately, 2021 is a transition year, which means organizations will not yet report on the full taxonomy, but they will be required to do so from 2023 onwards. A number of specific reporting rules will apply towards financial sector entities.
How KPMG and KPMG Law are assisting our clients
KPMG and KPMG Law are already working on readiness assessments for our clients in connection with the EU Taxonomy and CSRD. In doing so, we are assessing where they find themselves in the regulatory framework and what steps they need to take to be compliant with the new regulations.
KPMG and KPMG Law are always closely following the latest developments in sustainability reporting and sustainable finance. We help our clients to prepare and assist them in setting up and shaping their policies and procedures, and in identifying and analyzing the gaps in their current operations. Furthermore, we support our clients in evaluating the maturity of their processes, systems, and data, as well as provide assurance on their reported sustainability information and indicators.
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