EU Taxonomy: Are Your Platforms „Green Deal Reporting Ready”?
Effects of the Taxonomy Regulation on Corporate Reporting
With the target date "2050", the environmental protection ambitions of the so-called "EU Green Deal" still seem to be far in the future - however, due to the "EU Taxonomy Regulation", information on ecologically sustainable activities must already be available in the corporate reporting of many European companies for the year 2022.
In view of steadily increasing reporting obligations - especially in the non-financial ESG area - companies are increasingly asking themselves who is responsible for defining and reporting certain key figures. In the technological-processual context, it must also be clarified which tools, platforms and processes take over the data logistics and ensure the "delivery" of the required information to the headquarters.
What Is the EU Taxonomy About?
With the aim of directing more investment funds into environmentally friendly activities and sustainable technologies, the EU will in future also require companies of public interest, insurance companies and financial service providers to bring their activities into line with at least one of six defined environmental objectives. In doing so, it must be ensured that the other objectives are not significantly harmed ("DNSH" - do not significantly harm).
In order to make the information on environmentally appropriate economic activity comparable and sanction-proof, in the financial context, for example, information on capex and opex for certain corporate activities can play a significant role in management decisions or the investment propensity of capital market participants (e.g. large state pension funds).
Why Is There a Need for Action in the Financial Organization?
Without a doubt, the implementation of the EU Taxonomy Regulation is a priority topic for experts in reporting in European companies. As the new regulations will come into force gradually from 2022, new information on the classification of certain economic activities will be relevant for the first time in the current year. As a first step, companies will then be required to report on the two most important objectives of "preventing climate change and adapting to climate change".
The required classification of activities, which is equivalent to a company-wide inventory of economic activities, is based on the criteria of the so-called NACE codes, which are issued by the European Union for the statistical systematization of economic activities.
With regard to the usability of the actual information to be reported for the current fiscal year in controlling, many companies have already been active in the previous year 2021 as part of the fiscal year planning 2022-2024. For comparison and controlling purposes, corresponding values for the EU Taxonomy information were therefore collected across the Group. Integrated cloud-based platform solutions with flexibly adaptable web-based data collection applications that reach all reporting units in globally operating corporate groups are certainly a promising option here.
Where Can Companies Find Orientation Points?
Of course - as has been the practice at the EU level for some years now - a large number of organizations publish concept papers and frameworks that companies can use for orientation as long as concrete legislative requirements are still awaited. The most popular pronouncements currently come from the Task Force on Climate-related Financial Disclosure – TCFD, the Value Reporting Foundation – VRF, the Global Reporting Initiative – GRI, the World Economic Forum – WEF or the European Supervisory Authorities – ESAs. The IASB (International Accounting Standards Board) - the standard setter for capital market-oriented financial reporting in the EU - has also announced its intention to become involved in setting standards in the future and has established the "International Sustainability Standards Board".
There is already a need for action in the current fiscal year with regard to the new EU regulation, because for the first time information that conforms to environmental targets must be included in corporate reporting.
The "Corporate Sustainability Reporting Directive (CSRD)" will be launched in 2024. It is estimated that around 15,000 small and medium-sized capital market-oriented companies will then have to submit mandatory sustainability reports in line with the EU Taxonomy Regulation and actively publish sustainable finance information in Germany. In view of this deadline, the responsible departments should be identified by the end of 2022 at the latest, the designated tools should be upgraded, and the required processes should be established.