The Future Of Green - 

The European Union 

Green Deal Paul Walsh BA LLM (UWA)

ESG Management Law Division

The Green Deal Introduction

The European Green Deal is a set of policy initiatives by the European Commission with the aim of making the European Union climate neutral by 2050. The plan includes increasing the EU’s greenhouse gas emission reductions target for 2030 to at least 50% compared with 1990 levels. The plan also involves reviewing existing laws and introducing new legislation on the circular economy, building renovation, biodiversity, farming, and innovation1.

The Green Deal is a coordinated set of policies and legislation designed to lower the European Union’s global warming emissions to zero over the next 30 years. The plan requires a transformation of the EU’s economy across a range of sectors including transport, construction, agriculture, industry, and energy. The EU has allocated over €1 trillion in funding mechanisms to facilitate the Green Deal


European Union Key Green Strategies

The overarching aim of the European Green Deal is to reach net-zero greenhouse gas emissions within the EU and deliver a pollution-free environment by 2050. Advances in transport, agriculture systems and ecosystems and biodiversity are all required, as well as efforts to further develop a circular economy that ensures products can be reused and recycled. From 2021 to 2027, 35 percent of the EU’s research funding will be dedicated to developing climate-friendly technologies.

Some of the main initiatives under the European Green Deal are:

Link to EU Commission Website Here


The Corporate Sustainability Reporting Directive (CSRD

The Corporate Sustainability Reporting Directive (CSRD) is a proposed directive by the European Commission that aims to increase transparency on corporate performance in terms of sustainability. It is expected to be effective from 01 January 2024 for those entities already subject to the Non-Financial Reporting Directive (NFRD) and from 01 January 2025 for all other large companies. The scope of reporting entities has expanded, and it is estimated that the number of entities affected by these new regulations will increase fivefold. This means that the reporting obligation would also apply to family-run and private equity-owned enterprises. The content of the report has been comprehensively expanded, and new, binding EU sustainability reporting standards will be adopted. The purpose is to create more uniformity in application, to replace the current patchwork of standards across the EU and in Ireland. 

EU Companies Under The Directive

Almost 50,000 companies are expected to be impacted by CSRD, making up some three quarters of business in the European Economic Area. CSRD will apply to all:


The Directive and Ireland

The Corporate Sustainability Reporting Directive (CSRD) is a proposed directive by the European Commission that aims to increase transparency on corporate performance in terms of sustainability. It is expected to be effective from 01 January 2024 for those entities already subject to the Non-Financial Reporting Directive (NFRD) and from 01 January 2025 for all other large companies.

The CSRD will have a significant impact on companies in Ireland. Almost all large Irish public and private companies will be subject to mandatory sustainability reporting in accordance with the European Single Reporting Standard (ESRS). The definition of a ‘large company’ is when, on its balance sheet date, two of the following three criteria are met: more than 250 employees on average during the financial year, a balance sheet total in excess of 20 million euros, or a net turnover in excess of 40 million euros.

The timeline for the implementation of the CSRD is ambitious. Given the significance of the proposed CSRD obligations, companies need to start preparing for its implementation now.


Irish Companies and the CSRD

It is estimated that the number of entities affected by the CSRD will increase fivefold compared to the previous Non-Financial Reporting Directive (NFRD). This means that the reporting obligation would also apply to family-run and private equity-owned enterprises. The number of Irish-based companies covered is likely to grow significantly. Ireland is home to numerous subsidiaries of overseas multinationals, mainly from the US and UK. These Irish-based entities haven’t had mandatory sustainability reporting requirements, and this will change under the CSRD. There are over 1,000 direct foreign investment companies in Ireland, employing over 11% of the Irish Workforce.   

Double Materiality


The Corporate Sustainability Reporting Directive (CSRD) introduces a ‘double materiality perspective’, meaning that companies have to report about how sustainability issues affect their business and about their own impact on people and the environment.
Recital 25 of the draft CSRD elaborates on the double-materiality perspective that was introduced already in the Directive 2013/34/EU. Regarding both perspectives (impact materiality and financial materiality) the recital emphasizes that ‘undertakings should consider each materiality perspective in its own right, and should disclose information that is material from both perspectives and information that is material from only one perspective.’ As a consequence, information on sustainability matters which is material from one or both of these perspectives (‘double materiality’) should be included in the reports.

        EU Taxonomy

The EU taxonomy is a classification system that defines criteria for economic activities that are aligned with a net-zero trajectory by 2050 and the broader environmental goals other than climate. It is a cornerstone of the EU’s sustainable finance framework and an important market transparency tool that helps direct investments to the economic activities most needed for the transition, in line with the European Green Deal objectives.
The Taxonomy Regulation establishes the framework for the EU taxonomy by setting out four conditions that an economic activity must meet in order to qualify as environmentally sustainable. A qualifying activity must: contribute substantially to one or more of the six environmental objectives; do no significant harm to any of the other environmental objectives; be carried out in compliance with minimum social safeguards; and comply with technical screening criteria.

Taxonomy Criteria

The six environmental objectives established by the Taxonomy Regulation are:
- Climate change mitigation
- Climate change adaptation
- The sustainable use and protection of water and marine resources
- The transition to a circular economy
- Pollution prevention and control
- The protection and restoration of biodiversity and ecosystems.

The Taxonomy Regulation was published in the Official Journal of the European Union on 22 June 2020 and entered into force on 12 July 2020.


CSRD Legal Summary

CSRD Overview:

Applicability:

Reporting Requirements:

Compliance Timeline:

European Sustainability Reporting Standards:

Ensuring Compliance:



Social Impact

The Corporate Sustainability Reporting Directive (CSRD) requires companies to report on how sustainability issues, such as climate change, impact their business and how their operations in turn affect people and the planet – a unique principle called ‘double materiality’ discussed above.
Companies will need to be more detailed in their sustainability reporting, covering issues such as environmental, social and human rights, plus governance factors. Reports must cover: social matters and treatment of employees; respect for human rights; anti-corruption and bribery; diversity on company boards (in terms of age, gender, educational and professional background). These provisions will have a profound impact on organizations reporting under the CSRD provisions in terms of organizational structures, cultural transformations, diversity, equity and inclusion. The Green Deal is clearly the most significant development in the future of work ever committed by the EU as it commits the EU to becoming the world's leading sustainable entity in terms of environmental, social, and financial governance by 2050. 



Timelines

The CSRD will phase-in as follows:

The European Commission is required to adopt delegated acts that provide detailed European sustainability reporting standards. These standards are being developed by the European Financial Reporting Advisory Group (EFRAG), and it is expected that the first set of standards will be adopted in June 2023.

Companies affected by the CSRD must now take operational steps to ensure compliance with the new rules. Notably, the audit process will need to be updated to ensure that sustainability factors are robustly measured and reported, allowing for independent assessment by external auditors. While this may pose challenges in the short term due to the ongoing development of sustainability reporting requirements, companies should initiate the compliance process sooner rather than later, given the substantial work involved


CSRD In A Nutshell

Compiled by Paul Walsh BA LLM (UWA)



Nurturing an ESG Culture

Nurturing an ESG culture requires actively engaging, training, and empowering employees as they form the foundation of any organizational culture. Without their full support, the cultural change necessary for ESG transformation will not occur, hindering progress on the journey towards ESG integration.


Executing and Embedding Cultural Change

Executing and embedding cultural change throughout an organization is a complex task that demands buy-in from both the C-suite and the shop floor. This alignment of the entire workforce with ESG values and behaviours is crucial. Without cultural change, organizations will face resistance from management and employees, which can impede the successful integration of environmental, social, and governance considerations into every aspect of their business. To achieve ESG transformation, it is crucial to define what ESG cultural change means and take key actions to drive it.

The Importance of Cultural Change

Executing and embedding cultural change across an organization is challenging, requiring buy-in from all levels, from the leadership to the shop floor. Without cultural change, organizations will struggle to integrate environmental, social, and governance considerations into their business practices. According to a recent survey of employees in ESG-related roles, 84% believe cultural change is crucial for successful ESG transformations, with both senior leadership and employees playing a critical role. ESG culture should be authentic, transparent, and inclusive, reflecting the organization's identity, promoting open communication, and involving all employees. Successful ESG cultural change requires commitment from top management, employee engagement, and alignment of the entire workforce towards ESG goals.

Comprehensive Cultural Change

Executing and embedding cultural change across an organization is complex and requires buy-in from the C-suite to the shop floor, along with realignment of the entire workforce to embrace ESG values and behaviours. Without cultural change, organizations will face resistance from management and employees, making it difficult to integrate environmental, social, and governance considerations into every aspect of their business. To achieve successful ESG transformations, organizations must define and reinforce critical behaviors consistent with the new ESG strategy, while also driving change from both the top and bottom of the organization. This comprehensive cultural change should penetrate all areas of the business, including governance, operations, remuneration, and communication, and requires a commitment of financial and human resources. Management's full backing is essential for the successful implementation of ESG cultural change.

Key Actions for ESG Cultural Change

Implementing and embedding cultural change is a crucial step for the success of an ESG transformation. Without it, organizations may face resistance from management and employees, hindering the integration of environmental, social, and governance considerations into their business practices. However, achieving cultural change across the entire organization is a complex task that requires buy-in from the C-suite to the shop floor. To drive ESG cultural change effectively, organizations should focus on four key actions:


Governance and Top-Down Steering:

Effective leadership sets the direction and leads by example. 

Senior management must actively demonstrate their commitment to ESG values and align the organization's goals with ESG principles.

Bottom-Up Pressure:

Successful ESG cultural change is driven from both the top and the bottom of the organization. 

Employees must embrace and incorporate ESG values and behaviours into their daily work. 

Middle management also plays a crucial role in driving ESG changes and ensuring alignment across the organization.

Values and Behaviours:

Cultivating a transformation-friendly culture is essential.

Organizations should nurture values and behaviours related to responsibility, trust, collaboration, and innovation.

These values should be aligned with the organization's authentic identity to create a coherent and sustainable ESG culture.

Key Performance Indicators (KPIs):

Implementing clear and measurable ESG KPIs such as organization scans supported by incentive systems can help drive ESG cultural change. These KPIs should measure the progress and process of the ESG transformation, providing insights into the organization's performance and guiding decision-making.

It is important for leaders to pay close attention to how the cultural changes are affecting all levels of the organization and understand the preferences and priorities of employees. Different aspects of ESG may have varying relevance to individuals based on their roles and seniority. Therefore, a one-size-fits-all approach may not be effective, and all aspects of ESG should be integrated into the transformation journey to ensure inclusivity and avoid leaving any employees behind.

Cultural change is vital for the success of an ESG transformation. Organizations should focus on governance and top-down steering, bottom-up pressure, values and behaviours, and KPIs to drive effective ESG cultural change. By implementing these key actions, organizations can integrate ESG values and behaviours into their culture and achieve a successful ESG transformation. The commitment of leadership and the power of communication are the keys to sustainable transformation in a positive ESG culture.