The European Union considers it essential to equate sustainability information with financial information, allowing investors to access reliable and comparable data.
To promote transparency in sustainable matters and environmental preservation, the legislation establishes new standards that companies must comply with. This is to cover some gaps in the current regulations on non-financial information, considered unreliable.
The Directive introduces new obligations on the impact of companies on the environment, human rights and the social sphere. These obligations will act in line with the EU’s climate objectives.
How is a sustainable economy achieved?
The transition from the current economy to a sustainable economy is one of the actions studied by the EU. In order to generate a sustainable economy, the evolution and development of financial information is important.
Therefore, the need has been established for companies belonging to the EU to regularly report on sustainability to provide information to investors.< /p>
In fact, in recent years there has been an increase in demand for sustainability information from companies, especially from the investment community. This is motivated by investor awareness of the financial implications of climate-related risks.
Which companies must report on sustainability?
EU sustainability reporting requirements will apply to all large companies, regardless of whether they are listed on stock exchanges or not. values.
Non-EU companies with substantial activity in the European Union (with a turnover greater than 150 million euros and that have a subsidiary company or branch in EU territory) will also have to comply.
The same goes for publicly traded SMEs. All of them will be obliged to report on the repercussions of their activities on people and the environment.
When will the regulations that require companies to report on sustainability come into force?
- From January 1, 2024, it will be mandatory for large public interest companies (more than 500 employees) already subject to the non-financial reporting directive. These companies will have to submit their reports in 2025.
- From January 1, 2025, it will be mandatory for large companies not subject to the directive on non-financial information (more than 250 employees and/or a turnover of 40 million euros and/or 20 million in total assets). These companies will have to submit their reports in 2026.
- As of January 1, 2026, it will be mandatory for listed SMEs and other companies. These companies must submit their reports in 2027.
Why does sustainability information affect financial investors?
Sustainable finance is a strategy in which the environmental, social and governance impact of activities is taken into account in the investment financial.
Typically, finance focuses on short-term financial performance.
In this case, sustainable finance aims to maximize long-term financial performance taking into account factors such as sustainability, environmental and social impact, investing in companies with solid corporate governance practices or investing in renewable energy.
Therefore, sustainability information affects investors because it will allow them to promote sustainable development and environmental protection through decisions responsible financial.
The published Directive aims to reorient capital flows towards sustainable investments to achieve sustainable and inclusive growth, manage financial risks derived from climate change, resource depletion, environmental degradation and social issues.
Savers who want to invest sustainably will have the opportunity to do so.
Source: Olga Agea, Firmafy.
