Essential ESG regulations for businesses in European Union
| Regulation Name | Businesses Affected | Regulatory Body | Important Dates | Regulation Purpose | Voluntary/Mandatory | Potential Benefits | Penalties for Non-Compliance |
|---|---|---|---|---|---|---|---|
| Climate Benchmarks Regulation (EU 2019/2089) | Investment product providers | European Commission | Since April 2020 | Create climate benchmarks (EU CTB, EU PAB) to aid sustainable investments | Mandatory | Enhanced transparency, alignment with climate goals | Non-compliance may affect investor trust and market reputation |
| Sustainable Finance Disclosure Regulation (SFDR) | Financial market participants, advisers | European Commission | Since March 2021 | Disclose sustainability risks, improve transparency | Mandatory | Informed investment decisions, uniform protection for investors | Regulatory fines, reputational damage |
| Taxonomy Regulation (EU 2020/852) | Financial institutions, companies | European Commission | Ongoing implementation | Establish a harmonized EU taxonomy for sustainable activities | Mandatory | Attract sustainable investments, prevent “greenwashing” | Non-compliance may affect investor confidence and market access |
| Corporate Sustainability Reporting Directive (CSRD) | Large companies, SMEs listed on markets | European Commission | Proposed legislation | Extend mandatory ESG reporting, improve transparency | Proposed | Enhanced ESG disclosure, comparability | Regulatory fines, reputational risk |
| EU Green Bonds Regulation (EUGBR) | Companies issuing green bonds | European Commission | Ongoing implementation | Set EU standard for green bond issuance, clarify definitions | Mandatory | Trustworthy green bond offerings, alignment with sustainability goals | Non-compliance may affect investor confidence and market access |
| ESRS (European Sustainability Reporting Standards) | All companies operating in the EU | European Commission | Ongoing implementation | Standardize sustainability reporting across the EU | Voluntary | Consistent and reliable ESG reporting | Improved transparency, comparability |
| Guidelines on ESG Risk Management | Financial institutions | European Banking Authority (EBA) | Consultation ongoing | Address ESG risks, integrate risk management processes | Voluntary | Enhanced risk resilience, alignment with sustainability goals | Regulatory scrutiny, reputational risk |
| EU Regulation on ESG Rating Providers (ESGR) | ESG rating providers | European Commission | Ongoing implementation | Define ESG ratings, set standards for methodologies | Mandatory | Transparent and reliable ESG ratings | Penalties for non-compliance with established methodologies and transparency requirements |
If you are looking for an experienced ESG expert who can help your business get the best out of these regulations, learn more about our services here
Details about the regulations
The following section contains a concise details about some of the applicable ESG regulations in the European Union.
- Climate Benchmarks Regulation (EU 2019/2089):
Background: Introduced in April 2020, this regulation focuses on sustainable finance by creating two new categories of climate benchmarks: the EU climate transition benchmark (EU CTB) and the EU Paris-aligned benchmark (EU PAB). These benchmarks consider the carbon footprint of underlying assets, aiding investors seeking sustainable investment products.
Impact on Businesses: Companies offering investment products can use these benchmarks to demonstrate their commitment to climate goals.
Important Dates: Applicable since April 2020.
Required ESG Expertise: An ESG consultant with expertise in benchmarking and sustainable finance can guide businesses in adopting these benchmarks. - Sustainable Finance Disclosure Regulation (SFDR, EU 2019/2088):
Background: Effective since March 2021, SFDR enhances transparency by requiring financial market participants and advisers to disclose sustainability risks. It ensures uniform protection for end investors.
Impact on Businesses: Companies must provide clear ESG-related information in their disclosures, affecting product offerings and marketing.
Important Dates: Applicable since March 2021.
Required ESG Expertise: A sustainability consultant or legal advisor can help businesses comply with SFDR requirements. - Taxonomy Regulation (EU 2020/852):
Background: The Taxonomy Regulation establishes a harmonized EU standard for classifying financial products as sustainable. It aims to prevent greenwashing.
Impact on Businesses: Companies can align their activities with the taxonomy criteria to attract sustainable investments.
Important Dates: Ongoing implementation; detailed criteria are being phased in.
Required ESG Expertise: A sustainability analyst familiar with the taxonomy can assist businesses in identifying eligible activities. - Corporate Sustainability Reporting Directive (CSRD):
Background: Proposed in April 2021, CSRD extends mandatory ESG reporting to large companies and SMEs listed on regulated markets. It aims to improve transparency.
Impact on Businesses: Companies will need to report additional ESG information alongside financial statements.
Important Dates: Proposed; legislative process ongoing.
Required ESG Expertise: A sustainability reporting specialist can guide businesses in complying with CSRD requirements. - EU Green Bonds Regulation (EUGBR):
Background: EUGBR sets an EU standard for green bond issuance, clarifying definitions based on the Taxonomy Regulation.
Impact on Businesses: Companies issuing green bonds must adhere to the specified criteria.
Important Dates: Ongoing implementation.
Required ESG Expertise: A green finance consultant can assist businesses in structuring green bond offerings. - ESRS (European Sustainability Reporting Standards):
Background: ESRS aims to standardize sustainability reporting across the EU. It provides a consistent framework for companies to disclose ESG information transparently.
Impact on Businesses: Companies will need to align their reporting practices with ESRS to enhance comparability and reliability.
Important Dates: Ongoing implementation; adoption and compliance are encouraged.
Required ESG Expertise: A sustainability reporting specialist familiar with ESRS can guide businesses in preparing accurate and comprehensive reports. - Guidelines on the Management of ESG Risks (European Banking Authority):
Background: These guidelines address ESG risks, including those arising from the transition to a climate-neutral economy. They cover identification, measurement, management, and monitoring of ESG risks.
Impact on Businesses: Financial institutions must integrate ESG risk management into their processes.
Important Dates: Consultations ongoing.
Required ESG Expertise: An ESG consultant with expertise in risk management can assist businesses in implementing these guidelines. - EU Regulation on ESG Rating Providers (ESGR):
Background: ESGR applies to ESG ratings issued by providers operating in the EU. It defines ESG ratings and sets standards for methodologies.
Impact on Businesses: ESG rating providers must adhere to established methodologies and transparency requirements.
Important Dates: Ongoing implementation.
Required ESG Expertise: An ESG analyst or legal advisor can help businesses navigate ESGR compliance.
Disclaimer- Please remember that ESG regulations are evolving over time, and to stay updated on which specific regulations influence your business the most, you need to consult with an ESG expert. You can find EU’s top ESG specialists here.
