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Have you ever been to the rainforest in the northwestern part of the Plitvice Lakes National Park? It is called Čorkova uvala rainforest.
It is located at an altitude of 860 to 1028 m. I went there, as a child of 9 years, for one winter visit to the Plitvice Lakes National Park. It was very cold. Very stoic. The dominant impression is left by trees of different heights, thicknesses and ages. These trees are over 500 years old, 58 m high and 150 cm in diameter.
Producers of products have long been familiar with the LCA acronym. It stands for Life Cycle Assessment. Life Cycle Assessment (LCA) is an all-encompassing methodology (ISO 14040/14044) used to assess the environmental impacts linked to with all stages of a product or service’s life cycle, from raw material extraction through production, use, and disposal. It is an effective tool for evaluating the environmental performance of products, processes, or activities and identifying opportunities for improvement.
The EU taxonomy could be a powerful tool to start the transition to a more coordinated approach on Energy Performance Certificates at EU level and push their quality. In December 2021, the Commission proposed revision on the energy performance of buildings COM/2021/802. It upgrades the existing regulatory framework to reflect higher ambitions and more pressing needs in climate and social action.
GRC (Governance, Risk and Compliance) platforms have expanded their abilities to embrace ESG (Environmental, Social and Governance) data, predominately through carbon accounting tools. Governance Risk Compliance platforms are routinely used for operational, IT and financial risk management. The GRC platforms, at the present moment, gather carbon data to aid compliance and regulatory reporting.
In 2019, EU Commission introduced Double Materiality as part of the 2019 Non-Binding Guidelines on Non-Financial Reporting Update (NFRD). The Directive describes “companies have to report about how sustainability issues affect their business and about their own impact on people and the environment.” This means that ESG criteria involves risks and opportunities that are material from a financial or a sustainability perspective, or both. EU Taxonomy, implemented from 2022 and Corporate Sustainability Reporting Directive (CSRD), on schedule for implementation in 2023, also incorporate double materiality.
Materiality is a process used to identify priority issues for management. There is a clear distinction between the concept of materiality as referred to in financial reporting, and the concept of materiality as referred to in sustainability reporting. In financial reporting, information is considered material if its exclusion or misrepresentation could influence the economic decisions end user takes based on such a financial statement. In sustainability reporting, the term materiality refers to those issues that can have significant outcomes for the company (either positive or negative).
All stakeholders, from their customers to investors, employees, and the public, have eyes on the environmental impact. The move towards sustainability includes transparent disclosures with financial implications for companies failing to report. Calls for enhanced transparency around environmental, social and governance factors are growing to an unmatched volume than ever before, in the last few years. As a result, corporate sustainability and climate change efforts are quickly converting from optional to obligatory. This is a direct driver for companies to flourish robust sustainability and ESG strategies together with transparent reporting.
Following the adoption of the 2015 Paris Agreement on climate change and the United Nations 2030 Agenda for Sustainable Development, EU Commission has expressed in the Action Plan “Financing Sustainable Growth” its intention to clarify fiduciary duties and increase transparency in the field of sustainability risks and sustainable investment opportunities with the aim to:
- reorient capital flows towards sustainable investment to achieve sustainable and inclusive growth,
- assess and manage relevant financial risks stemming from climate change, resource depletion, environmental degradation, and social issues, and
- foster transparency and long-termism in financial and economic activity.
At EU level, sustainable corporate governance has been mainly fostered indirectly by imposing reporting requirements in the Non-Financial Reporting Directive (NFRD). The NFRD, proposed in 2014, inflicts reporting, on approximately 12.000 companies, concerning environmental, social, and human rights related risks, impacts, measures (including due diligence) and policies.
The above mentioned 12.000 companies, are comprised of large public-interest entities that have more than 500 employees. Their balance sheet total or net turnover exceeds the Accounting Directive’s threshold for large enterprises. It encompasses listed companies, banks, and insurance companies.
The EU Taxonomy is a green classification system that translates the EU’s climate and environmental objectives into criteria for specific economic activities for investment purposes.
It recognises as green, or ‘environmentally sustainable’, economic activities that make a substantial contribution to at least one of the EU’s climate and environmental objectives, while at the same time does not significantly harm any of these objectives and meets minimum social safeguards.
The Taxonomy Delegated Acts establish and maintain clear criteria for activities to define what it means to make a substantial contribution and what it means to do no significant harm.
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