Where the UK and European Union stand on sustainability regulation
ESG has impacted businesses and marketplaces all around the world – and has been for some time, particularly in Europe. European regulations have pushed organizations and investors to disclose, measure, and manage more.
The UK’s exit from the European Union opened up new opportunities to establish its own regulations around social responsibility and environmental sustainability reporting. However, the UK had plenty of frameworks to pull for inspiration with the more progressive rules either already in place or in discussion during the lead-up to the break.
These days, the ESG regulation environment can be a little overwhelming, and to no one’s surprise, it’s full of new acronyms. So, we’ve broken down some of the most significant standards paving the way for more transparency across Europe.
The UK’s Tailored Take On SFDR
For investors and businesses operating in the European Union, the Sustainable Finance Disclosure Regulation (SFDR) has been on the top of everyone’s minds. The regulation was adopted in 2019, and the first of several milestones began taking place in early 2021.
A fast brush-up on SFDR: The regulation is causing financial market participants and financial advisors in the EU, including asset managers, to err on the side of full transparency when it comes to considering ESG-related risks in their investment decision-making process. The goal here is to prevent the growing concerns of greenwashing, mainly from the investors’ perspective.
In the post-Brexit world, the UK is not obligated to adopt the regulation and has opted to take a seat on the sidelines – for now. The country is expected to develop its own standardization process, which will include compulsory alignment with the Task Force on Climate-Related Disclosures by 2025. That said, UK-based firms acting as financial market participants and financial advisors within the EU will need to stay on top of the regulation.
The Many Faces Of EU And UK Sustainability Reporting
In 2018, the EU Non-Financial Reporting Directive (NFRD) went into effect, which essentially required large public companies with more than 500 employees to disclose how they manage certain environmental and social challenges. Those challenges include:
Social matters and treatment of employees
Respect for human rights
Anti-corruption and bribery
Diversity on company boards
According to the European Commission, “this helps investors, civil society organisations, consumers, policy makers and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business.”
Now, the European Commission has adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which expands the reporting requirements to include all companies listed on a regulated market and auditing practices, among other actions.
But again, the UK isn’t responsible for reporting in alignment to NFRD or CSRD – because of Brexit. What the UK has referenced is Sustainability Disclosure Requirements (SDR), which according to IPE, “would require businesses to disclose their risks and opportunities from, and impact on, the climate and the environment.”
So, while the UK isn’t expected to align with the European Commission on SFDR, NFRD, or CSRD, it’s steadfast in carving out its own pathway to remain a leader in the ESG reporting and regulation landscape.
ESG regulation is tricky, especially when you start crossing international borders. At Global Imprint, we’re here to help you make sense of the ever-evolving ESG landscape. Reach out to our team to set up an introductory call or complete our ESG Readiness Survey to get your ESG baseline.