EU Companies Get New ESG Rules Aimed at Addressing Climate Risks

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Tens of thousands of companies operating in Europe face new requirements to report their operations’ ESG impacts as the European Union advances a plan to address climate change and environmental degradation through increased transparency and market pressures.

The European Commission said Monday that it adopted a checklist that companies must use to disclose the effects of climate change and other environmental and social factors on their businesses, and also report their impact in places they operate.

The decision comes just weeks after asset managers and investors launched a coordinated appeal to the commission to toughen its proposal, which applies to both non-financial and financial companies and which they said was out of step with the stricter reporting requirements for financial firms. Specifically, companies had been given too much latitude to decide what to disclose in an attempt to cut reporting burdens.

“The standards we have adopted today are ambitious and are an important tool underpinning the EU’s sustainable finance agenda,” Mairead McGuinness, the commissioner for financial services, said in a statement.

The European Sustainability Reporting Standards are the mechanism for implementing the EU’s Corporate Sustainability Reporting Directive, the first initiative globally to implement a so-called double materiality approach. Companies will now be required to report simultaneously on how their operations may be affected by environmental, social and governance risks and also their impact on biodiversity, emissions and the communities in which they’re located.

Companies will have to disclose whether they have climate transition plans and also report relevant social factors, including human rights violations, as part of the larger plan to highlight the investment risks and opportunities presented by ESG factors.

“The standards strike the right balance between limiting the burden on reporting companies while, at the same time, enabling companies to show the efforts they’re making to meet the Green Deal Agenda,” McGuinness said. That will ensure they’ll have access to financing.

The standards will be phased in. Large companies will be required to publish their first reports in 2025, based on 2024 data, while smaller companies will get more time. EU authorities also are scheduled to develop industry-specific disclosure requirements.

–With assistance from Lyubov Pronina.