In a rapidly evolving landscape, regulatory updates in the European sustainable finance market continue to shape the future of environmental and economic sustainability. The recent approval and entry into force of key directives underscore the EU’s commitment to fostering a greener, more responsible financial system.
This article delves into three significant developments: the revised Energy Performance of Buildings Directive, the latest implementation status of the EU Taxonomy, and the adoption of the Corporate Sustainability Due Diligence Directive.
On 8 May 2024 the revised Energy Performance of Buildings Directive (EPBD) was published in the Official Journal (OJ) of the European Union, marking its official entry into force on May 28, 2024. This follows its adoption by the Council on 12 April 2024.
This milestone initiates a two-year period during which EU Member States must transpose the new rules into national legislation, aiming to achieve building decarbonisation targets by May 28, 2026, and set the timeline for the adoption of secondary legislation by the European Commission.
Key requirements of the revised EPBD include:
The European Commission published an update on the implementation status of the EU Taxonomy on 5 June 2024, showing encouraging signs that companies, public entities, and financial actors are increasingly using the Taxonomy for their business strategies, transition planning, investing, and lending.
According to the European Commission data, banks are starting to use the Taxonomy in their lending strategies and in their assessment of companies’ investment plans.
Mortgages and other loans to activities in the scope of the Taxonomy represent, on average, over 50% of the assets of large EU banks based on first-year figures. It is however noteworthy to mention that virtually no taxonomy-aligned renovations are reported in the EU.
On 24 May 2024 the European Council adopted the Corporate Sustainability Due Diligence Directive (CSDDD), concluding the journey started on 23 February 2022, when the European Commission first submitted to the European Parliament and to the Council a proposal. The CSDDD introduces obligations for large companies regarding adverse impacts of their activities on human rights and environmental protection and lays down the liabilities linked to these obligations.
The CSDDD applies to companies with over 1,000 employees and a turnover exceeding 450 million euros, moving away from a previous focus on high-risk sectors. Companies with more than 5,000 employees and over 1.5 billion euros turnover must comply by 3 years from its entry into force; those with over 3,000 employees and 900 million euros turnover must comply by 4 years from its entry into force , and finally, those with over 1,000 employees and 450 million euros turnover will have to comply by 5 years from its entry into force. The Directive requires companies to conduct due diligence on their supply chains to identify, prevent, and address risks related to human rights, the environment and good governance, and to implement policies and processes for monitoring and reporting these efforts.
The Directive will enter into force on the twentieth day following its publication on the Official Journal of the European Union. Member States will have two years to implement the regulations and administrative procedures to comply with it.
These regulatory developments are crucial in driving sustainable finance and ensuring that Europe remains at the forefront of the global shift towards a more sustainable future.
Co-funded by the European Union, the ENGAGE for ESG initiative aims to support lending institutions in navigating the complex regulatory landscape and promote ESG transparency for residential mortgages and home renovation loans.
In particular, the ENGAGE Templates (launched in November 2023) will help lending institutions identify the relevant climate-related data to align their mortgages and home renovation loans with the EU Taxonomy.
Get in touch with the ENGAGE for ESG Project Coordinator to learn more about the Templates and how you can get involved.
To achieve the proposed 55% emission reduction climate target by 2030, around EUR 275 billion of additional investments are needed per year.
© Copyright 2022-23 Engage. All Rights Reserved.
