Category Archives: ESG

Why Isn’t Everyone Talking About the EU Taxonomy?

Comply with the EU Taxonomy in 2024 with Findings.co

Despite its far-reaching implications for corporate sustainability, ESG standards, and compliance landscapes, the EU Taxonomy Regulation seems to fly under the radar of mainstream conversations. Why is this groundbreaking framework not the talk of every boardroom and the headline of every business news outlet? Let’s dive into the essence of the EU Taxonomy, its impacts, and the reasons it should be at the forefront of global sustainability discussions.

The EU Taxonomy Explained

The EU Taxonomy is a legally binding classification system developed by the European Commission to direct investments towards sustainable projects. It aims to enhance transparency, prevent greenwashing, and ensure that environmental sustainability is embedded in the heart of financial and economic activities. By defining what constitutes a sustainable economic activity, it mandates financial and non-financial undertakings to disclose how their operations align with specific criteria related to environmental sustainability, covering aspects such as turnover, capital expenditures (CapEx), and operating expenditures (OpEx). The taxonomy represents a framework for categorizing economic activities based on their alignment with a net zero pathway by 2050 and wider environmental objectives beyond climate concerns.

The Current State of Compliance and the Chasm Ahead

The EY EU Taxonomy Barometer 2023 provides illuminating insights into the current state of compliance. While an encouraging 89% of companies report some level of disclosure, the actual alignment with the taxonomy’s objectives is less than 40%. This discrepancy underscores a critical challenge: companies are struggling to fully integrate the taxonomy’s rigorous environmental standards into their operations. The complexities of disclosure requirements, coupled with interpretative uncertainties and the detailed technical analysis required for alignment assessments, present formidable hurdles.

Despite these challenges, the benefits of adopting the EU Taxonomy are manifold. Beyond compliance, alignment with the taxonomy fosters improved transparency, access to green financing, enhanced reputation, and opportunities for value creation and employee retention. Yet, as the research analyzing 320 companies across various EU countries and sectors indicates, there is a significant variation in the levels of taxonomy alignment, with certain sectors like power and utilities faring better than others.

Why the Silence?

Given the critical importance of the EU Taxonomy in steering the continent towards sustainability, the lack of widespread discourse is perplexing. Several factors contribute to this silence:

  1. Complexity and Uncertainty: The intricate details and the evolving nature of the taxonomy’s criteria make it a challenging subject for widespread discussion. Businesses are still grappling with understanding and implementing these regulations, leading to a focus on internal compliance efforts rather than external discourse.

  2. Sector-Specific Impacts: The impact of the taxonomy is more pronounced in certain sectors, leading to uneven levels of engagement and discussion across industries. Companies in sectors with clearer pathways to sustainability may find it easier to align and thus more likely to engage in discussions.

  3. Emerging Reporting Requirements: The integration of the Corporate Sustainability Reporting Directive (CSRD) into the taxonomy framework is set to expand the scope of companies required to disclose sustainability information. As companies prepare for these new requirements, the focus may be more on internal readiness rather than public conversation.

  4. Investment and Partnership Implications: The stark reality is that companies with low ESG scores, and by extension, poor alignment with the EU Taxonomy, face significant barriers to investment and partnerships. This looming threat may prompt companies to prioritize internal adjustments over public engagement on the topic.

The Path Forward

The time to talk, act, and lead on the EU Taxonomy is now. The EU Taxonomy is not just another regulatory requirement; it is a pivotal element of the EU’s ambition to become a carbon-neutral continent. It represents a fundamental shift towards embedding sustainability at the core of economic activities. As the taxonomy evolves and expands, companies must not only strive for compliance but also recognize the strategic value of sustainability reporting.

Businesses should embrace the taxonomy as a tool for strategic planning, risk management, and market differentiation. Developing comprehensive reporting strategies, mapping financial data to the taxonomy’s requirements, and establishing robust processes and controls are critical steps in this journey.

Moreover, fostering a broader dialogue about the EU Taxonomy and its implications for global sustainability efforts is essential. By bringing this conversation to the forefront, businesses, policymakers, and stakeholders can collectively navigate the complexities of the taxonomy, leverage its benefits, and drive meaningful progress towards a sustainable future.

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The Ripple Effect – Unraveling Scope 3 Emissions

ESG Compliance with Findings.co - Unraveling scope 3 emissions

Unraveling the Complexity of Scope 3 Emissions

Understanding and managing greenhouse gas (GHG) emissions is crucial for any organization committed to reducing its carbon footprint in 2024. Among these emissions, Scope 3 emissions present a formidable challenge – yet offer a significant opportunity at the same time. These emissions, stemming from activities not directly controlled by an organization but crucially impacting its value chain, are often the largest share of an organization’s carbon output. In this blog I will discuss Scope 3 emissions, offering practical insights into their calculation, reporting, and reduction, tailored for the sustainability champions within organizations.

The Scope 3 Emission Landscape

Scope 3 emissions, as defined by the GHG Protocol, encompass all indirect emissions that occur in an organization’s value chain, excluding direct emissions (Scope 1) and indirect emissions from purchased electricity, steam, heating, and cooling (Scope 2). This broad category covers emissions from both upstream and downstream activities, ranging from the production of purchased goods and services to the end-of-life treatment of sold products. With 15 categories outlined by the GHG Protocol, Scope 3 emissions can be seen as a complex web interconnecting an organization with its suppliers, customers, and the broader environment.

Given their extensive nature, Scope 3 emissions often account for the majority of an organization’s GHG footprint, sometimes dwarfing the combined total of Scope 1 and 2 emissions. This vast impact underscores the importance of accurately identifying, calculating, and reporting these emissions. However, the path to mastering Scope 3 emissions is fraught with challenges, from determining relevant categories to ensuring accurate data collection and calculation.

Charting a Course Through Scope 3 Calculation

The journey to Scope 3 begins with identifying relevant emission categories. This process involves assessing which of the 15 categories are significant based on factors such as size, influence, risk, and stakeholder expectations. Following this, organizations will have the task of estimating GHG emissions. This step requires navigating through various calculation methods, from spend-based approaches to more detailed activity-based data collection, each method offering a different level of accuracy and complexity.

A critical aspect of Scope 3 management is the continuous improvement and expansion of emissions estimates. Organizations are encouraged to refine their data collection methods over time, shifting from generalized estimates to more precise measurements. This evolution not only enhances the accuracy of Scope 3 reporting but also highlights opportunities for targeted emissions reductions within the value chain.

Strategies for Scope 3 Emission Reduction

Addressing Scope 3 emissions effectively requires a multifaceted approach. Engaging with suppliers to encourage better environmental practices is a key strategy, as is selecting vendors based on their carbon management efforts. Furthermore, optimizing product design for sustainability and exploring opportunities for renewable energy procurement can significantly reduce the environmental impact of both upstream and downstream activities.

The path to reducing Scope 3 emissions also involves leveraging technology and innovation. Leading reporting frameworks like CDP, GRI, ENERGY STAR, and GRESB provide a variety of support to assist organizations in figuring out their greenhouse gas emissions information. Additionally, embracing software-as-a-service (SaaS) solutions for GHG emissions data management can streamline reporting and analysis, enabling organizations to identify and act on reduction opportunities more efficiently.

Embracing the Scope 3 Challenge

For sustainability leaders, tackling Scope 3 emissions is not just about compliance or reporting; it’s about seizing the opportunity to make a profound impact on the planet’s future. By embracing the complexity of Scope 3 emissions, organizations can uncover hidden opportunities for improvement, drive innovation in their value chains, and take a leading role in the global transition to a low-carbon economy. The journey may be challenging, but with the right strategies, tools, and commitment, it is a journey that can lead to significant environmental, economic, and social rewards.

In conclusion, as we navigate the intricacies of Scope 3 emissions together, let’s remember that every step taken towards understanding and reducing these emissions is a step towards a more sustainable and resilient future. The task at hand is not just a responsibility but an opportunity to lead change and make a lasting difference.

Everything You NEED to Know About the TCFD

everything you need to know about the tcfd

In the world of climate change and sustainability, the transition from the Task Force on Climate-related Financial Disclosures (TCFD) to the International Financial Reporting Standards (IFRS) marks a significant evolution. Initially spearheaded by the Financial Stability Board (FSB) in 2015, the TCFD’s recommendations have been pivotal in shaping regulatory frameworks globally. However, as of 2024, the IFRS takes the baton, introducing a newer, more detailed framework for international ESG reporting, risk management, and climate-related financial disclosures. This blog explores the transition, its implications, and what it means for the future of climate risk disclosures.

The Birth of TCFD and Its Impact on the Global Landscape

First, let’s start with what The Task Force on Climate-related Financial Disclosures (TCFD) even is. Led by Michael Bloomberg, this was created by the Financial Stability Board (FSB) in the aftermath of the 2008 global financial crisis to promote international financial stability. The TCFD’s primary objective is to improve and standardize organizations’ disclosures related to climate change. By promoting transparency, the TCFD seeks to help companies integrate climate-related risks and opportunities into their strategic planning, risk management, and decision-making processes. This proactive approach encourages companies and investors to understand the financial implications of climate change, paving the way for investments in sustainable and resilient solutions.

Global Adoption and Impact

The TCFD’s recommendations have gained significant momentum worldwide. Several jurisdictions, including the European Union, Singapore, Canada, Japan, and South Africa, have incorporated these guidelines into their regulatory frameworks. The United Kingdom and New Zealand were also on the verge of mandating climate risk disclosures using the TCFD framework.

The Transition to IFRS: A New Chapter in Climate-Related Disclosures

The FSB has announced that the TCFD has completed its mission and will be replaced by the IFRS, a move that signifies a step towards a more standardized global approach to disclosing climate-related risks and opportunities. The IFRS, through the International Sustainability Standards Board (ISSB), will adopt and enhance the TCFD’s framework, ensuring a seamless transition while calling for more detail and transparency in disclosures.

What is the IFRS?

The IFRS is a non-profit organization focused on establishing globally accepted sustainability disclosure standards. It aims to closely monitor companies’ progress in climate-related disclosures, adopting the TCFD’s recommendations with additional insights from the ISSB. This approach ensures a comprehensive framework for organizations to communicate their sustainability-related financial information effectively.

Key Differences and New Directions Under IFRS

The IFRS standards, particularly IFRS S1 and IFRS S2, build upon the TCFD’s foundational work, integrating its recommendations while introducing new requirements for a more detailed disclosure process. Key differences include:

  • Comprehensive Coverage: IFRS S1 extends beyond climate to cover all sustainability-related issues, offering a holistic approach to ESG reporting.

  • Scope 3 Emissions Reporting: IFRS S2 mandates detailed reporting on Scope 3 emissions, providing a fuller picture of a company’s environmental impact.

  • Material Information Focus: Both IFRS S1 and S2 stress the importance of disclosing all material sustainability-related information, ensuring that investors have a complete understanding of a company’s sustainability performance.

  • Industry and Sector Specifics: The new standards require disclosures tailored to specific industries and sectors, enhancing the relevance and comparability of information.

Preparing for the IFRS Transition

Companies need to align their reporting practices with the upcoming ISSB standards, starting with a thorough review of current sustainability reporting to identify any gaps. Establishing robust data collection and management systems is crucial for capturing the necessary sustainability information, including detailed greenhouse gas emissions data and insights into climate risks and opportunities.

The Legacy of TCFD and the Path Forward

The TCFD has been instrumental in advancing the practice and quality of climate-related disclosures. Its recommendations have laid the groundwork for the ISSB standards, ensuring that the transition to IFRS reporting will continue to support informed decision-making by investors, lenders, and insurers. As the ISSB takes over monitoring responsibilities from the TCFD in 2024, companies are encouraged to familiarize themselves with the new requirements to maintain compliance and support transparency in financial markets.The shift to IFRS reporting not only reflects the evolving landscape of financial disclosures but also shows the collective commitment of businesses, investors, and regulators to address the financial implications of climate change.

Posted in ESG

Scope 2 Simplified: Navigating Indirect Emissions in Energy

Scope 2 Simplified: Navigating Indirect Emissions in Energy

Mastering Indirect Energy Emissions for ESG Compliance

In the current era of environmental accountability, companies are increasingly focusing on aligning with the principles of ESG criteria. A critical aspect of this alignment involves the meticulous understanding and management of Scope 2 emissions. These indirect emissions, derived from an organization’s purchased energy use, often don’t receive as much attention as direct emissions but are just as vital in the pursuit of environmental sustainability objectives. These emissions, arising indirectly from the energy purchased and used by an organization, are a critical component of a comprehensive carbon footprint analysis. As ESG officers and compliance professionals, it’s essential to have a clear understanding of Scope 2 emissions to effectively navigate the complexities of corporate environmental responsibility. In this article I will aim to highlight the significance of Scope 2 emissions within the framework of ESG compliance and provide guidance for businesses seeking to refine their environmental strategies towards a more sustainable future.

Understanding Scope 2 Emissions

At its core, Scope 2 emissions refer to indirect greenhouse gas (GHG) emissions from the generation of purchased electricity, steam, heating, and cooling that an organization consumes. While direct emissions (Scope 1) are often the primary focus of emission reduction strategies, Scope 2 emissions play a significant role in a company’s overall environmental impact. They are pivotal in understanding the broader implications of a company’s energy choices.

Recent years have seen significant evolutions in the way Scope 2 emissions are measured and reported. The Greenhouse Gas Protocol, a globally recognized standard for GHG accounting, has set forth guidelines that bring clarity and consistency to Scope 2 emissions reporting. These guidelines emphasize the need for accurate tracking of energy procurement and consumption, offering a more comprehensive view of an organization’s carbon footprint.

Strategic Management of Scope 2 Emissions

The management of Scope 2 emissions presents unique challenges and opportunities for organizations. Developing a strategic approach to these emissions involves a deep understanding of energy procurement and the use of renewable energy sources. One prevalent method employed by many companies is the utilization of Renewable Energy Certificates (RECs). RECs represent a specific amount of green energy, providing a way for organizations to offset their emissions. However, relying solely on RECs might not fully address the need for actual reductions in greenhouse gas emissions.

Effective management of Scope 2 emissions also hinges on the understanding of diverse energy markets and regulatory frameworks. For instance, companies operating in Europe face challenges due to fluctuations in gas supply and energy prices, while those in Asia, particularly China, navigate complex energy markets with dual pricing structures. Understanding and adapting to these regional differences is crucial for developing a robust Scope 2 emission strategy.

Advanced Tools for Scope 2 Emission Calculation and Reporting

In the digital age, technological advancements are revolutionizing how companies approach Scope 2 emissions. One innovative solution is offered by companies like Findings.co, which provides automated assessment tools. These tools enable organizations to accurately calculate their indirect emissions by analyzing energy consumption data. This technology simplifies the complex process of gathering and interpreting data, making it easier for companies to understand their energy usage and associated emissions. By leveraging such technologies, businesses can not only comply with reporting requirements but also identify areas for improvement in their energy consumption and sourcing strategies.

Overcoming Challenges in Scope 2 Emission Reporting

Accurate reporting of Scope 2 emissions is fraught with challenges, primarily due to the indirect nature of these emissions. Organizations often struggle with obtaining precise data, especially when their supply chains span across various regions with different reporting standards and practices. Moreover, the risk of double counting emissions in Scope 3 (which includes all other indirect emissions in a company’s value chain) further complicates this process.

To overcome these challenges, companies need to invest in quality data collection and technology. This involves developing robust internal tracking systems and leveraging external databases and analytical tools. Establishing clear lines of communication with suppliers and partners throughout the supply chain is also vital to ensure accurate and comprehensive data collection.

Regulatory Landscape and Compliance

Looking ahead, the management and reporting of Scope 2 emissions are expected to evolve significantly. With the global push towards net-zero commitments, companies will need to intensify their efforts in reducing indirect emissions. This will likely include a greater reliance on renewable energy sources and more innovative approaches to energy management.

Moreover, as regulatory frameworks continue to tighten, with initiatives like the EU’s Corporate Sustainability Reporting Directive (CSRD) and the SEC’s climate disclosure rules, companies will need to be more transparent and proactive in their emission reporting. The concept of double materiality, which considers both the financial impact and the broader societal and environmental impact of a company’s activities, will become increasingly important.

The Role of AI in Enhancing Corporate Compliance

Supply chain compliance - the role of ai in enhancing corporate compliance

In the rapidly evolving corporate world, Artificial Intelligence (AI) is no longer a futuristic concept but a present-day reality, especially in the realm of corporate compliance. AI is transforming traditional compliance processes, offering innovative solutions like automated risk assessments, real-time monitoring, and predictive analytics. This article delves into how AI is reshaping compliance management, its benefits, and the challenges it poses.

Transforming Traditional Compliance

AI is revolutionizing Governance, Risk, and Compliance (GRC) platforms by identifying risk, audit, and control deficiencies. It aids in detecting duplicate risks, over-testing, and under-testing of controls, and significantly reduces false positives in Anti-Money Laundering (AML) and Know Your Customer (KYC) applications. In compliance organizations, AI forces professionals to rethink operational models and risk management approaches, making compliance more efficient and effective.

Automated Risk Assessments

AI significantly enhances risk assessments by predicting planning and prioritization. It scans multiple data sets and systems, offering incredible improvements in horizon scanning, regulatory change management, and policy management. AI’s ability to integrate and improve finance and internal controls is also noteworthy, providing insights into the effectiveness of controls and identifying potential weaknesses.

Real-time Monitoring

The real-time monitoring capabilities of AI are pivotal in compliance. Natural language models, for instance, can scan thousands of sources for regulatory updates, producing consolidated summaries for senior management review. This real-time information flow enables firms to stay current with regulatory changes and respond proactively to emerging risks.

Predictive Analytics

AI’s predictive analytics play a crucial role in understanding risk models, offering more accuracy than traditional statistical analyses. AI tools can identify patterns and potential causes of risk events, recommending controls to mitigate such risks. This predictive power is particularly beneficial in financial risk management, AML/KYC functions, and in addressing environmental, social & governance (ESG) issues.

Challenges and Best Practices

Despite its advantages, integrating AI into corporate compliance strategies presents challenges. Ethical, legal, and compliance risks emerge when AI is not appropriately governed. Organizations must create internal policies, procedures, and oversight mechanisms to harness AI effectively. Best practices include appointing a dedicated AI leader, mapping all AI uses, and ensuring transparency and continuous testing of AI systems.

Ethical Considerations and Future Directions

AI in compliance is at a nascent stage, and its ethical implications cannot be ignored. AI functions can find themselves in gray areas of legal frameworks and organizational procedures. Looking forward, the development of AI must be ethically controlled, involving legal governance or organizational regulation. The next wave of AI solutions in compliance will need to be tailored to fit within ethical boundaries, ensuring client confidentiality and practical business solutions.

Closing Thoughts

AI’s role in enhancing corporate compliance is undeniable. From transforming traditional compliance processes to providing real-time monitoring and predictive analytics, AI is a valuable asset in the compliance toolkit. However, the journey is not without challenges. As we embrace AI’s potential in compliance, we must also navigate its ethical implications and ensure its responsible use. By doing so, organizations can leverage AI not just for compliance but as a competitive advantage, fostering trust and scaling with confidence.

Posted in ESG

Unveiling ESG Investing: A Guided Insight

Unveiling ESG Investing: A Guided Insight

In recent times, the investment landscape has significantly evolved, steering towards a more responsible and sustainable approach. One of the prominent facets of this evolution is ESG investing. This article aims to guide you through the crux of ESG investing, its rising significance, and how it’s reshaping the global investment paradigm.

 

 

Understanding ESG Investing

ESG stands for Environmental, Social, and Governance, representing three core factors that measure the sustainability and ethical impact of an investment. This form of investing goes beyond mere financial analysis, offering a broader perspective that encompasses ethical, ecological, and effective governance considerations.

 

Why the Sudden Surge?

The rise in ESG investing is not a happenstance but a result of growing awareness among investors about the consequences of their investment choices. The catastrophic impacts of climate change, the drive for social equality, and the call for better corporate governance are among the catalysts propelling ESG investing to the forefront.

 

Benefits of ESG Investing

Investing with an ESG lens not only reflects an investor’s ethical stance but also potentially yields better long-term financial returns. It’s a win-win scenario, where investors can support responsible practices and enjoy a sustainable financial growth trajectory.

 

Navigating Through ESG Metrics

A myriad of ESG metrics exist, making it imperative for investors to understand and select the ones aligning with their values and investment goals. These metrics offer a tangible means to evaluate and compare companies on their ESG performance, aiding in informed decision-making.

 

ESG Investing in Practice

Adopting an ESG investing approach requires a thorough understanding of ESG metrics and a disciplined investment strategy. Numerous funds and investment products have emerged, dedicated to following ESG principles, providing investors with various avenues to align their investments with their ethical and societal values.

 

The Global Resonance

ESG investing is not confined to a specific region; it’s a global movement. Countries and companies worldwide are acknowledging the importance of responsible investing, setting a new standard in the investment arena.

 

Future Trajectory

The trajectory of ESG investing is upward, with a promising future. As more investors align their portfolios with ESG principles, the ripple effect on corporations and, subsequently, the global economy is bound to be significant.

ESG Investing is more than a fleeting trend; it’s an integral part of the modern investment landscape. As awareness and regulatory frameworks around ESG investing continue to evolve, the ripple effect on global financial markets is bound to be profound, marking a positive stride towards a sustainable and ethical global econo

Posted in ESG

Complying With EU Taxonomy Regulations to Enhance Risk Management

Findings.co discusses how to comply and leverage the eu taxonomy to enhance risk management efforts

In today’s fast-paced regulatory landscape, businesses face the daunting task of complying with new regulations all the time. Recently, organizations have been faced with dealing with the EU Taxonomy regulations. With an increasing demand for sustainable practices and transparent reporting, organizations need to learn and adapt quickly to avoid falling behind their competitors. Leveraging the EU Taxonomy in risk management can drive data-driven decision making by providing a structured framework to assess and manage sustainability-related risks and opportunities.

The constantly evolving regulatory environment has made Taxonomy compliance a critical challenge for businesses. To meet investor expectations, consumer preferences, and regulatory requirements, organizations must navigate through complex sustainability criteria and efficiently report their compliance efforts. Make sure to read on to see how Findings can help – especially when it comes to staying compliant with the EU Taxonomy Regulation.


Understanding the Regulatory Demands

The EU Taxonomy sets guidelines and criteria for determining the environmental sustainability of economic activities. Compliance with this regulation is critical for many businesses operating within the European Union, aiming to foster a greener and more sustainable economy. These significant updates and changes will impact the way businesses assess and report their sustainability practices. It is crucial for organizations to understand these updates, ensuring compliance while mitigating the risk of penalties and reputational harm.

Leveraging Risk Management for Data Driven Decision Making

By implementing a robust risk management framework revolving around taxonomy, organizations can stay ahead and ensure compliance. Leveraging the EU Taxonomy in risk management drives data-driven decision making by providing a standardized and science-based framework to assess sustainability risks and opportunities. By integrating financial and sustainability data, companies can make informed choices that align with the EU’s environmental objectives, attract green investments, and proactively respond to changing regulatory landscapes.

Here are some of the key ways taxonomy can influence data driven decision making:

  1. Identifying Taxonomy-Eligible Activities: The first step in using Taxonomy for risk management is to identify the company’s Taxonomy-eligible activities. By mapping all activities against the Taxonomy’s criteria, businesses can determine which of their operations contribute to environmental sustainability. This helps in recognizing areas where the company aligns with the EU’s sustainability goals and where there may be potential risks due to misalignment.


  1. Environmental Risk Assessment: With the Taxonomy’s defined criteria for environmental sustainability, businesses can conduct a more rigorous environmental risk assessment. This assessment will go beyond traditional financial risks to include the evaluation of ecological impacts. It allows companies to identify areas where they might face future regulatory or reputational risks due to non-compliance or unsustainable practices.



  1. Data-Driven Eligibility and Alignment Scoring: The Taxonomy requires companies to link their financial data to sustainability assessments. This means companies need to gather data on their operations and expenditures related to Taxonomy-eligible activities. By collecting and analyzing this data, businesses can score their eligibility and alignment with the Taxonomy’s environmental objectives. Data-driven scoring provides a more objective and transparent view of a company’s sustainability performance.



  1. Risk Mitigation Strategies: Armed with data on eligibility and alignment, companies can develop risk mitigation strategies. For instance, they can focus on increasing investments and efforts in Taxonomy-aligned activities, which not only contribute to sustainability but also enhance their attractiveness to green investors. Simultaneously, they can work on transitioning away from activities that are not aligned with the Taxonomy to reduce exposure to future risks.



  1. Regulatory Compliance: The EU Taxonomy is likely to expand to cover more sectors and objectives in the future. By leveraging the Taxonomy in risk management, companies can proactively prepare for upcoming regulatory changes. They can stay ahead of the curve by identifying potential future Taxonomy-eligible activities and aligning their strategies accordingly. Findings recently announced two features, Assessment AI and Audit AI, which revolutionize the labor-intensive compliance landscape by enhancing efficiency and responsiveness for all stakeholders worldwide. For more in-depth information that’s easy to digest, check out the linked videos.



  1. Reporting and Transparency: Using the Taxonomy for risk management facilitates better reporting and transparency. Companies can disclose their Taxonomy-aligned activities, eligibility scores, and risk mitigation strategies in their sustainability reports. This enhances credibility and helps investors and stakeholders make informed decisions based on reliable data

  1. Continuous Improvement: The data-driven approach to Taxonomy integration allows companies to track their progress over time. By regularly assessing their eligibility and alignment, businesses can set benchmarks, monitor improvements, and continuously optimize their sustainability efforts.

By implementing a comprehensive Taxonomy risk management framework and leveraging Findings, organizations can proactively address the challenges posed by the EU Taxonomy regulation. This approach ensures compliance, mitigates risks, and unlocks opportunities for sustainable growth and competitive advantage. With automated risk identification and mitigation features, organizations can confidently make data-driven decisions while navigating the complex regulatory landscape, reinforcing their commitment to sustainability. Stay ahead, embrace Taxonomy risk management, and shape a sustainable future for your organization.

 

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A Cheat Sheet of EU Sustainability Regulations

Findings.co cheat sheet of EU Sustainability Regulations

Staying Compliant in 2023

Sustainability reporting regulations have become increasingly important for businesses worldwide. The European Union (EU) is at the forefront of this movement, implementing regulations to enhance the consistency, accuracy, and transparency of sustainability reporting. Below, I will provide a comprehensive overview of some of the most critical EU sustainability regulations to keep in mind in 2023. Sustainability measures have become an integral part of business operations, irrespective of the size of the company. Companies can no longer ignore the growing number of sustainability reporting laws and regulations emerging globally. Navigating this complex landscape can be daunting, with terms like SFDR, CSDR, and NFRD, among others. To help you stay informed, I will highlight key EU sustainability regulations that are important to note in 2023.


EU Taxonomy

The EU Taxonomy is a classification system that establishes a list of economic activities considered sustainable. It aims to combat greenwashing and assist investors in selecting environmentally conscious investments. The EU Taxonomy evaluates investments based on their contribution to climate change mitigation and adaptation, alignment with circular economy principles, impact on pollution, and effect on water and biodiversity. Large companies began reporting their alignment with the EU Taxonomy on January 1, 2023. For a more in depth explanation of EU taxonomy, check out our free eGuide below!

 


Sustainability Disclosure Requirements (SDR)

Originating from the UK Financial Conduct Authority (FCA), the Sustainability Disclosure Requirements (SDR) regulation aims to address concerns about greenwashing, where firms make exaggerated or misleading sustainability claims about their investment products, leading to potential consumer harm and reduced trust in sustainable investments. The proposals focus on building transparency and trust by introducing labels to help consumers navigate the market and ensure that sustainability-related terms in product naming and marketing are accurate and proportional to the product’s sustainability profile. The consultation targets FCA-regulated firms, industry groups, consumer groups, policymakers, academics, and other stakeholders. This initiative is part of the FCA’s commitment to promote trust and integrity in ESG-labeled instruments and products as outlined in the ESG Strategy and Business Plan, contributing to the Government’s Roadmap to Sustainable Investing. 


EU Sustainable Finance Disclosure Regulation (SFDR)

The Sustainable Finance Disclosure Regulation (SFDR), implemented by the European Parliament, focuses on enhancing transparency in the sustainable investment market. It aims to prevent misleading environmental claims (greenwashing) and increase investment in sustainable products for a transition to a low-carbon economy. The SFDR categorizes investment products into three groups based on their degree of sustainability. It requires asset managers and investment advisers to disclose how they address Sustainability Risks and Principal Adverse Impacts and the three categories of products go into “Article 6,” “Article 8,” and “Article 9” based on their sustainability considerations. The regulation rolled out in two phases, with core disclosures effective in March 2021 and enhanced disclosures in January 2023. Regulators continue to provide guidance on these disclosures as industry understanding evolves. 


Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) expands on the existing Non-Financial Reporting Directive (NFRD) to address structural weaknesses in current ESG regulations. CSRD came into force on January 5, 2023, requiring approximately 50,000 companies to report on sustainability, including a broader set of large companies and listed SMEs. The new rules aim to provide investors and stakeholders with the necessary information to assess investment risks related to climate change and sustainability issues. 

Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards (ESRS), which will be developed by the EFRAG and tailored to EU policies while aligning with international standardization initiatives. The directive also mandates companies to have their sustainability information audited and introduces digitalization of sustainability information. 

The CSRD will be implemented in the 2024 financial year, and companies will need to comply with the new reporting requirements for reports published in 2025. The European Commission has also opened a public feedback period on draft sustainability reporting standards, considering feedback received before finalizing the standards for scrutiny by the European Parliament and Council. These new regulations represent a significant step towards promoting sustainability and responsible business practices within the EU corporate landscape.


Corporate Sustainability Due Diligence Directive (CSDDD)

The Corporate Sustainability Due Diligence Directive (CSDDD) is a pending EU proposal that will require large EU companies and non-EU companies with large EU undertakings to exercise due diligence across their business lines and value chains. It aims to prevent human rights and environmental violations. The draft proposal was approved by the EU Parliament on June 1, 2023, and negotiations with member states will follow. Due diligence obligations may come into effect as early as 2025.

The rules will apply to specific categories of companies. Firstly, large EU limited liability companies will be affected, categorized into two groups. Group 1 includes approximately 9,400 companies with 500 or more employees and a net turnover of over EUR 150 million worldwide. Group 2 comprises about 3,400 companies operating in high-impact sectors, such as textiles, agriculture, and mineral extraction, with at least 250 employees and a net turnover of over EUR 40 million worldwide. For Group 2, the rules will be applicable two years later than for Group 1. Additionally, non-EU companies will also come under scrutiny. Approximately 2,600 companies in Group 1 and 1,400 in Group 2, active within the EU and generating turnover thresholds aligned with the mentioned criteria, will be subject to the new rules. It’s important to note that micro companies and SMEs will not be directly affected by these proposed rules. However, supporting measures for SMEs will be provided, which may have indirect effects on them.


Streamlined Energy and Carbon Reporting (SECR)

The Streamlined Energy and Carbon Reporting (SECR) policy, introduced by the UK Government, requires organizations to include energy consumption and carbon emission data in their annual reports. It aims to expand reporting to a broader range of companies and promote energy efficiency initiatives to reduce carbon footprints. The SECR applies to large UK companies, including quoted and unquoted companies, as well as limited liability partnerships. The reports must include information on energy use, greenhouse gas emissions, and energy efficiency measures undertaken. 


Circular Economy Action Plan

The Circular Economy Action Plan is an initiative by the European Commission to promote a circular economy, reducing pressure on natural resources, and achieving climate neutrality and biodiversity conservation by 2050. Really, the goal is to make sustainability a norm. The plan aims to strengthen the eco-design of products, increase recycling rates, reduce landfilling, and promote sustainable consumption and production practices. It includes measures such as extended producer responsibility, eco-design requirements, and waste reduction targets. The plan was published in March 2020 and will be implemented gradually over the coming years. To achieve these objectives, the European Commission plans to implement all 35 actions listed in the plan. Additionally, a monitoring framework has been established to assess progress towards a circular economy and its benefits. This framework includes indicators to monitor material efficiency, consumption within planetary boundaries, and support the European Green Deal’s climate neutrality goals.


EU Emissions Trading System (EU ETS)

The EU Emissions Trading System (EU ETS) is a key policy instrument in the EU’s efforts to combat climate change. It is a cap and trade system operating in EU countries, Iceland, Liechtenstein, and Norway. It aims to limit greenhouse gas emissions from various sectors, including the energy industry, manufacturing, aviation, and maritime transport. The system covers approximately 40% of the EU’s total greenhouse gas emissions and is set to include emissions from maritime transport starting in 2024. Under the cap and trade principle, a cap is placed on the total amount of greenhouse gasses that covered operators can emit. This cap is reduced over time to ensure overall emissions decrease. Operators buy or receive emissions allowances within the cap, and they can trade these allowances with others. This creates a market for emissions allowances, encouraging emission reductions and investments in low-carbon technologies. Operators must surrender enough allowances to cover their emissions annually, and failure to do so results in heavy fines. If an operator reduces its emissions, it can keep the extra allowances for future use or sell them to others needing more allowances. 

The EU ETS covers various sectors, including electricity and heat generation, energy-intensive industries like steel and cement production, aviation within the European Economic Area, and maritime transport. Participation is mandatory for certain-sized companies in these sectors, with exceptions for some small installations under certain conditions.


Stay Compliant!

For businesses operating within the European Union, adhering to these sustainability regulations is not only a legal obligation in many cases, but also an opportunity to play a crucial role in building a sustainable and resilient future. Compliance with these regulations is essential to demonstrate a commitment to environmental responsibility, social well-being, and corporate governance best practices. As companies strive to meet these regulatory requirements, it is vital to establish robust systems and processes for accurate and transparent sustainability reporting. By doing so, businesses can effectively manage risks associated with non-compliance, foster trust with stakeholders, and seize the potential advantages of sustainable practices, including increased attractiveness to environmentally conscious investors and consumers.

The regulations discussed in this cheat sheet, including SDR, SFDR, EU Taxonomy, CSRD, CSDDD, SECR, Circular Economy Action Plan, and EU ETS, cover a wide range of environmental, social, and governance aspects. It is important for companies to familiarize themselves with these regulations, and monitor updates. embracing sustainability and staying compliant with the EU’s evolving sustainability regulations is not merely a box-ticking exercise but an ongoing commitment to creating a positive impact on the planet and society. 



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An Introduction to the EU Taxonomy Regulation

An explanation of what is the eu taxonomy regulation?

In Brief:

  • The EU Commission introduced the Action Plan on Sustainable Finance in 2018 to guide investments towards sustainable projects and fulfill climate and energy targets.

  • The EU Taxonomy Regulation was implemented as part of the Action Plan to establish a universal terminology and classification system for sustainable economic activities.

  • The Taxonomy Regulation defines six environmental objectives, including climate change mitigation, circular economy transition, and biodiversity protection.

  • The Taxonomy Regulation imposes reporting obligations on certain entities, amending the Non-Financial Reporting Directive and the Sustainable Finance Disclosure Regulation.

In March 2018, the EU Commission introduced the “Action Plan on Sustainable Finance” with the objective of guiding investments towards sustainable projects and endeavors. One of its main purposes The goal is to reach a climate-neutral economy in the EU by 2050, with a reduction of 55% already implemented in 2030.was to fulfill the goals outlined in the European Green Deal. The initial key step of this plan involved establishing a universal terminology and precise definition for activities that can be deemed “sustainable” in the economic realm. In pursuit of this objective, the EU Commission implemented a classification system known as the “Taxonomy Regulation” or “EU Taxonomy.” This system provides a comprehensive list of economically sustainable activities that align with the six environmental objectives specified by the Commission: climate change mitigation, climate change adaptation, preservation and responsible use of water and marine resources, transition to a circular economy, prevention and control of pollution, and protection and restoration of biodiversity.


Simplifying the EU Taxonomy

With its extensive document spanning hundreds of pages, the EU Taxonomy Regulation might appear intimidating at first glance. However, understanding its core concepts is essential. At its core, the Taxonomy serves as a classification system for economic activities, defining which activities are considered environmentally sustainable. It addresses the issue of greenwashing by enabling market participants to confidently identify and invest in sustainable assets. Additionally, the regulation introduces new disclosure obligations related to the Taxonomy for companies and financial market participants. Central to the Taxonomy Regulation is the definition of a sustainable economic activity. To qualify as sustainable, an activity must meet two criteria: contribute to at least one of the six environmental objectives outlined in the Taxonomy and avoid significant harm to any other objectives, while respecting human rights and labor standards.

 
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Taxonomy Reporting Requirements

While primarily serving as a classification tool, the Taxonomy Regulation imposes reporting obligations on certain entities. It amends the disclosure requirements in the EU’s Non-Financial Reporting Directive (NFRD) and the Sustainable Finance Disclosure Regulation (SFDR).

Under the NFRD, non-financial undertakings must disclose the proportion of turnover derived from Taxonomy activities, as well as the proportion of their capital and operating expenditure associated with these activities (Article 8 disclosure). The proposed Corporate Sustainability Reporting Directive (CSRD) will expand this requirement to a broader list of entities.

The SFDR requires entities falling under its scope to disclose information on the alignment of their products with the Taxonomy. This includes products with sustainable investment objectives (Article 9 SFDR) and those with environmental or social characteristics (Article 8 SFDR). Entities that do not consider the EU criteria for environmentally sustainable activities must make a statement to that effect (Article 7 SFDR).

 

Strategic Preparation for a Greener Future

The EU Taxonomy Regulation is a vital tool in driving the transition to a sustainable economy and achieving climate neutrality. By providing clarity on sustainable economic activities, it helps combat greenwashing and encourages investments in environmentally friendly assets. As the Taxonomy evolves and becomes integrated into various policy measures, its impact on financial markets and corporate practices will likely expand. Staying informed about the Taxonomy and its reporting requirements will be crucial for businesses and investors seeking to align with sustainable objectives and contribute to a low-carbon future.

As companies prepare to meet the EU Taxonomy requirements, they can benefit from early preparation, including eligibility assessments, alignment analyses, and designing data collection processes. By embracing these measures, companies can position themselves as drivers of sustainable change and contribute substantially to the EU’s environmental objectives.

Unveiling the Power of ESG Stakeholders

Who are the stakeholders influencing ESG investing?

Overview

  • ESG stakeholders, including investors, nonprofits, governments, customers, and employees, collectively drive and shape ESG metrics, promoting sustainability and responsible business practices.

  • Investors play a significant role by utilizing ESG criteria and ratings to identify companies that prioritize environmental and social responsibility, while nonprofits and NGOs advocate for ESG regulations and reporting frameworks.

  • Government regulations worldwide, such as those implemented by the EU, encourage companies to embrace sustainability and accurately report their ESG performance. Additionally, customer demand for ethical brands and employee expectations for purpose-driven work further push companies to adopt ESG values.


The Influence of ESG Stakeholders in Driving ESG Metrics


As the importance of environmental, social, and governance (ESG) factors continues to gain traction in the business world, a wide range of stakeholders is playing a crucial role in shaping and driving ESG metrics. From investors and nonprofit organizations to governments and employees, these stakeholders are collectively pushing for a more sustainable and responsible approach to business. This blog post, I will explore the different groups of ESG stakeholders and how they are influencing the implementation and reporting of ESG programs.


Investors and ESG Ratings


There’s a growing question of “are ESG investors underperforming?” With a prevalence of ESG in private markets increasing, a significant rise in the number of private equity firms signing the Principles for Responsible Investment (PRI) and raising $2.5 trillion in capital has also increased. However, there is limited data on ESG fund performance, and analysis shows no significant performance differences between PRI signatories and non-signatories. Bloomberg Intelligence predicts that the market size of ESG investments will reach $50 trillion by 2025, nearly three times the level in 2014. And with this in mind, investors are playing a significant role in driving ESG metrics. After all, many do utilize ESG criteria and ratings to identify companies that prioritize environmental and social responsibility. Raters and score providers are also amplifying the impact of ESG leaders by spotlighting purpose-driven companies through their sustainability rankings and reports.


Nonprofits and NGOs as Catalysts


Nonprofit organizations and non-governmental organizations (NGOs) are at the forefront of advocating for ESG regulations, standards, and reporting frameworks. Organizations like the International Financial Reporting Standards (IFRS), Carbon Disclosure Project (CDP), Sustainability Accounting Standards Board (SASB), and Global Reporting Initiative (GRI) are working towards establishing consistent and transparent ESG guidelines. Through their research, advocacy efforts, and collaborations, nonprofits and NGOs are shaping the ESG landscape and encouraging businesses to adopt sustainable practices.


Government Regulations


Governments worldwide are recognizing the need for ESG regulations to protect human rights and the environment. Countries such as Germany, the United States, the United Kingdom, Canada, and the European Union (EU) have introduced new ESG disclosure requirements and due diligence standards. The EU, in particular, has taken significant steps by implementing various regulations, including the General Data Protection Regulation (GDPR), Directive on Corporate Sustainability Due Diligence, EU Taxonomy, Corporate Sustainability Reporting Directive (CSRD) and European Single Electronic Format (ESEF) reporting, and Sustainable Finance Disclosure Regulation (SFDR). These regulations create a legal framework that drives companies to embrace sustainability and report their ESG performance accurately.


Customer Demand for Ethical Brands


Consumers are increasingly drawn to ethical brands, placing pressure on businesses to prioritize ESG practices. According to surveys, 74% of customers consider ethical corporate practices and values as a crucial factor when choosing a brand. Furthermore, a significant percentage (66%) of consumers plan to make more sustainable or ethical purchases in the coming months. To cater to this demand, companies are adopting sustainability initiatives, including carbon-labeling on products, to provide transparency and facilitate informed consumer choices.


Employee Expectations and Social Impact


Employees have become increasingly conscious of the impact their organizations have on society and the environment. They want to work for companies that align with their values and contribute positively to the world. A survey revealed that 93% of employees believe that companies must lead with purpose, while 65% feel that organizations should aim to leave their people “net better off” through work. Businesses that prioritize ESG values and make a positive impact on people and the planet are likely to see higher levels of employee satisfaction and attract top talent. Moreover, social impact has become an essential aspect of corporate philanthropy, with companies increasing community investments and providing opportunities for employees to engage in social initiatives.


ESG Stakeholders Pave the Way for a Sustainable Future


In short, ESG stakeholders, including investors, nonprofits, governments, customers, and employees, collectively drive and shape ESG metrics. The growing interest in ESG investing, the influence of ESG rating agencies, and the demand for ethical brands from customers all contribute to the momentum behind sustainable business practices. Additionally, nonprofits and NGOs drive the establishment of ESG regulations and reporting frameworks, while governments are implementing legal requirements to ensure corporate accountability. As employees prioritize purpose-driven work and communities expect businesses to give back, organizations are compelled to integrate ESG considerations into their operations. By recognizing and responding to the diverse interests of ESG stakeholders, businesses can thrive in a changing landscape and contribute positively to the world.




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