The challenge of sustainable finance II

The challenge of sustainable finance II

Within the ecosystem raised last month and recapping the reference of sustainable finance to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions, leading to more long-term investments in sustainable economic activities and projects, the EU Sustainable Finance Action Plan (2018) is formulated to align the interests of the European economy with the needs of the planet, its three main objectives being:

  • Redirect capital flows towards sustainable investments to achieve sustainable and inclusive growth.
  • To manage financial risks from climate change, resource depletion, environmental degradation and social problems.
  • Promote transparency and long-term sustainability in financial and economic activities.

Based on the above, there are implications for companies and financial markets at the EU and global level, which can be grouped into:

  • The report must be submitted in electronic format.
  • A sanctioning regime must be established.
  • This information must be certified by an independent third party—limited assurance until 2028 and reasonable assurance after 2028.
  • It will facilitate investor decision-making based on more reliable and transparent information.
  • Reinforces reporting on how the company manages the principle of respecting human rights through due diligence.
  • It takes a significant step towards the adoption of a comparable international standard.

This will affect, in its first stages, all listed companies in the EU, all insurers and credit institutions with more than 500 employees, and unlisted companies that meet 2 or 3 of the following criteria:

Group 1 -> European companies that meet two of the following requirements:

  • More than 250 employees.
  • Net turnover > 40 million euros.
  • Assets of more than EUR 20 million.

Group 2 -> Companies and SMEs listed on European regulatory markets, except micro-enterprises:

  • More than ten employees.
  • Net turnover 700,000 euros.
  • Assets of more than 350,000 euros

Group 3 -> Companies established abroad with significant operations in the EU through subsidiaries or affiliates, if:

  • They have a net turnover of 150 million euros generated in the EU (last two consecutive years).
  • They have subsidiaries or affiliates in the EU that meet the thresholds of groups one and/or two.

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