Jan 9, 2022
4 key sustainability regulations you should know about in 2022
The year 2022 has just begun, and yet it already promises to be a year full of change. With a lot of new policies and laws being drafted and quickly coming into force, we get it – it’s easy to lose track!
As a business in the European Union (EU), you might feel overwhelmed (and maybe even lethargic) just thinking about needing to get started to make your company more sustainable, and making sure it is compliant with all the new regulations. Don’t fret too quickly, this is where SustainLab comes to help.
Continue reading to find out about the key changes in sustainability legislation and regulations that might affect your business in the EU for 2022.
Need help with your sustainability reporting? If you want to know what regulations will hit you and how you can turn them into a competitive advantage, book a free demo with us!
1. ISSB Sustainability Disclosure: a global standard for sustainability reporting
Finally some progress is being made towards global standardization! If you haven’t already heard, the International Finance Reporting Standard (IFRS) has been working hard at creating a general framework of sustainability standards, and its work began with the creation of the International Sustainability Standards Board (ISSB). The ISSB will be responsible for developing a comprehensive global baseline of high-quality sustainability disclosure standards, with the first two standards expected to be published as soon as the second half of 2022. This global baseline will hopefully give companies around the world a unified way to work on sustainability reports; a unified language that all countries can learn. This will help improve transparency in reporting as well.
Businesses will have an easier time comparing reports in an efficient way, and investors will have a simple way of finding and understanding information about opportunities and risks regarding sustainability, giving them the tools they need to help them make informed decisions.
Who is it for?
While this is a global standardization endeavor, adoption of these new standards will still be up for individual jurisdictions. At the moment, the ISSB expects a rapid adoption of the standards in the UK, however, the path to adoption is less clear in the EU and the US. Nevertheless, as we like to say, you don’t know what you don’t know until it hits you! ISSB highly recommends that companies plan now for the potential rapid implementation of the disclosure standards.
When will it come into force?
The IFRS Foundation has since released two prototypes for its first two standards on:
After rounds of feedback and deliberation, the ISSB expects the two final standards to be issued by the second half of 2022, where it will be subsequently up to the different governing bodies to adopt these standards. While the exact date of when the standards will be finalized is still unknown, we think it can’t come soon enough!
The ISSB’s standards will simplify sustainability reporting once and for all, with the capability of changing the sustainability reporting process as we know it.
2. The EU Taxonomy’s Climate Delegated Act
The main protagonist of the EU’s action plan on financing sustainable growth, the EU Taxonomy Delegated Act , is a classification of sustainable economic activities. It was created to provide companies and investors with information on which economic activities are considered sustainable.
Created as a fundamental step towards reaching the objectives of the European Green Deal, the importance of the Delegated Act became much clearer during the pandemic. If there is something that Covid-19 proved, it’s how easily our systems are put under stress during an emergency, and how much change is needed. In particular, the EU noted the necessity of redirecting funds and investments towards more sustainable businesses. Once enacted, the Delegated Act could potentially have big consequences on the future of sustainable businesses. It will play a big role in securing investments, making businesses more environmentally-friendly, and protecting investors from greenwashing.
Who will it affect?
The main sectors that will be affected are Forestry; Environmental protection and restoration activities; Manufacturing; Energy; Water supply, sewerage, waste management and remediation; Transport; Construction and real estate activities; Information and communication; and Professional, scientific and technical activities.
When will it come into force?
The EU Taxonomy Regulation was approved in June 2020, and officially entered into force on 12 July 2020. The first delegated act on sustainable activities for climate change adaptation and mitigation objectives was formally adopted on 4 June 2021, and was mandatory for companies from January 2022. The remaining environmental objectives and delegated acts are expected to enter into force and be mandatory for companies in January 2023.
Reporting timeline:
For companies listed with activities in the EU you need to submit the first part of the report by Jan 2022, while the second is due in Jan 2023. For all other non listed large companies the wait is a little longer, the reports need to be submitted by Jan 2024!
It's worth keeping an eye on the development of the EU Taxonomy Delegated Act and its future developments, especially considering the latest news promises to consider both nuclear and gas energies as sustainable activities. Only time will tell how this will affect the future, but companies should read the Delegated Act carefully to see if the new legislations will apply to them.
3. EU’s Sustainable Finance Disclosure Regulation (SFDR)
The Sustainable Finance Disclosure Regulation is a brand new legislation with the goal of redirecting capital to more sustainable investments and activities. The SFDR wants to eliminate greenwashing by promoting transparency in the financial industry, which is something we definitely stand behind!
The EU has already been hard at work on the SFDR regulatory technical standards (RTS) covering different topics from data security to legal accountability. Right now the focus has shifted to monitoring the Principal Adverse Impact (PAI). That means businesses should pay extra attention to any investment decision or legal advice that might affect sustainability.
Who will it affect?
Companies operating in the financial and legal industries and financial market participants (FMPs), stay on your toes for this one! As for those of you in other sectors, we’d say it’s still in your best interests to remain updated!
When will it come into force?
Part of the SFDR was approved in March 2021, with the second phase entering full effect presumably in July 2022.
Reporting timeline:
The previous deadline to apply for the RTS was originally January 1st 2022, but the EU has since postponed it to January 1st 2023. Don’t celebrate just yet - while you might have more time to apply for the RTS, the completion and monitoring of the PAI is still due on January 1st 2022.
We’d say that it's still a good thing that the regulation’s effect won’t completely be delayed. But this means companies should already start researching right now to get more familiar with the SFDR to see if, and how much, they could be affected by the new SFDR, and make the necessary preparations.
4. CSRD: Europe’s new sustainability reporting directive
We saved the best for last, finishing off with the Corporate Sustainability Reporting Directive. Proposed in 2021, the legislation will enter into full force in 2023, replacing the previous directive on Non-Financial Reporting (NFRD). However, the framework for the CSRD is already being laid out right now, in 2022.
The new directive will expand the number of businesses affected by the EU Taxonomy and the SFDR by more than 50,000! This could potentially have huge consequences on the future of sustainability reporting as a whole, making it more attractive in the eyes of stakeholders and investors. The data in sustainability reports will become more accessible and easily understandable, and this will hopefully help businesses make better choices.
Who is it for?
While existing NFRD rules cover about 11,000 companies, the scope of the new CSRD proposal will cover approximately 49,000 companies! If you need a reason to pay attention to this regulation, just remember it applies to almost 50,000 companies - all large companies, all listed companies (including SMEs), and companies not established in the EU but with securities listed on the EU regulated markets - chances are high that the CSRD will apply to your company.
When will it come into force?
The EU wants to publish all mandatory standards by October 2022. This will create a fresh starting point in early 2023.
Reporting timeline:
The first reports are expected in 2024, giving companies more time to prepare. Small and medium businesses will have even more time, not needing to publish reports until 2026.
The full scope of this new legislation is available on the official EU website.
Here at SustainLab, we strive to help companies in their sustainability journeys - whether you want to ensure compliance or be a leader in sustainability, we’re here to help. We believe that by making businesses happier, society will follow along: better business – better planet!
This year promises to bring radical changes in the future of sustainability reporting, and we invite you to accompany us in this journey to a better future. Book a demo with us to see how we can help you on your journey.
Follow us on LinkedIn or contact us for more sustainability insights and industry news.
You can also book a free demo with us!
