The State of Corporate Sustainability Reporting in the EU

The legislation for sustainability disclosures in Europe will be reformed in 2021, as part of a major overhaul of financial market regulation. Importantly, these reforms include plans to create accompanying reporting standards.

Similar to financial accounting, sustainability reporting is essential for improved corporate management of risks and opportunities. Focusing on relevant and meaningful disclosures is key to produce high-quality and decision-useful reporting for organisations and investors alike. Using information reported on risks and impacts connected to climate change and broader sustainability matters, investors can best understand an organisation’s activities and strategies.

The European Commission will present a proposal for a reform in early 2021, while the EU Parliament will vote on the issue in Autumn.

EU Commissioner for Financial Services Mairead McGuinness clearly stated in December 2020 that “the rules of the game must be transformed to fully integrate sustainability at every step of the financial value chain” and identified the reform of the EU Non-Financial Reporting Directive as “one of the priorities to strengthen the foundations for sustainable investment”. 

Other reporting proposals have also recently stirred the reporting landscape, including:

  • Statement of Intent to Work Together from five reporting framework and standard-setting organisations that emphasises alignment and harmonisation;
  • proposal from the International Financial Reporting Standards (IFRS) Foundation to create a new Sustainability Standards Board (SSB) that would develop global sustainability standards;
  • The World Economic Forum International Business Council white paper that puts forth a common metrics for consistent reporting disclosure, building on existing sustainability reporting standards and frameworks.

These developments imply future changes to an organisation’s reporting structure and process. They lay the groundwork for framework that has close linkage to financial reporting, ultimately meaning that companies will need to treat sustainability information with a higher level of rigor, akin to information included in financial reporting.

EVORA works with companies all along the reporting journey, from those working on their first sustainability report to expert reporters who need help developing a long-term reporting strategy. By reporting, they capture numerous external and internal benefits, including meeting regulatory requirements, improving relationships with stakeholders, enhancing trustworthiness and reputation, clarifying on ESG performance, and identifying sustainability risks and opportunities.

EU Taxonomy: A Law of Significance

On Friday 19th June, the European Parliament adopted the Taxonomy Regulation. This could be the most significant piece of legislation which affects the treatment of sustainability risks by the European investment community. The Taxonomy is more than a system of classification of ESG risks and opportunities – its weight could make ripples around the global investment community.

Whilst ESG has been a niche investment class for the last couple of decades, the difference now is that Climate Change is seen as a mainstream investment risk. As Larry Flint said earlier this year, “Climate Risk is Investment Risk”. The members of the UN Asset-Owners Alliance, managing $4.7tn of assets, have committed to transition their portfolios to Net Zero Carbon by 2050. The world’s largest pension funds – GPIF, CalSTRS & USS – list climate change as their biggest ESG risk. This is not a niche regulation. It is expected to directly affect 7,000 listed companies and all issued fund-managed products. 

Whilst the Taxonomy’s main focus is on environmental issues – i.e. Climate Change Mitigation; Climate Change Adaptation; Sustainable & Protection of Water & Marine Resources; Transition to a Circulate Economy; Pollution Prevention & Control; and Protection & Restoration of Biodiversity & Ecosystems – it also has minimum social safeguards. Further legislation is expected to better regulate the social impact of investments so this Taxonomy is not the end in correcting existing market distortions.

The Taxonomy is important because it intervenes in how environmental investments are classified. It also sets our screening criteria and thresholds of significance. This is influential because it describes thresholds for a variety of activities. The thresholds are markers for what a ‘Significant Contribution’ is to tackling a particular challenge, like Climate Change Mitigation. It also sets in law thresholds for Do No Significant Harm (DNSH) so if you are investing to make a Significant Contribution to tackling Climate Change Mitigation you must also DNSH to Biodiversity.

For climate change mitigation, a 50%-55% reduction in emissions by 2030 is one criteria and net-zero by 2050 obviously. The weighty Technical Appendix, which accompanies the Taxonomy guidance, is more detailed and sets significance thresholds for a range of activities, including construction and the improvement of property:

  • “Acquisition and ownership: buildings built after 2021 are eligible if they meet the criteria for the ‘Construction of new buildings’, while buildings built before 2021 are eligible if their performance is comparable to the performance of the top 15% of the national stock, in terms of calculated Primary Energy Demand during the use phase. An additional requirement is applied only to large non-residential buildings (built both before and after 2021) to ensure efficient operations through energy management.
  • “Construction of new buildings: to be eligible, the design and construction of new buildings need to ensure a net primary energy demand that is at least 20% lower than the level mandated by national regulations. This is assessed through the calculated energy performance of the building, i.e. performance forecasted on the basis of modelling building physics under typical climatic and occupancy conditions.”

These criteria and thresholds are set out now and will be reviewed on 3-year cycle. You can expect them to ratchet up every 5 years so if you have long-term holds in your fund it is important to be aware of this process. The publication of this Taxonomy now is valuable because it can be built into due diligence processes and investment appraisals, including risks to income, growth and exit value. The start of 2022 is when this disclosure requirement will come into effect, but expect the preparation to start now. 

The Taxonomy Regulation builds on the Non-Financial Reporting Directive (NFRD) and the recent Regulation on the Disclosure of Sustainability Risks in Financial Services, which sets out high-level requirements for clear communication of these investment risks from March 2021. These are all key legal components of the European Green New Deal and the related Action Plan on Sustainable Finance.

Data is key to compliance with these regulations as these are measurable criteria. By investing over the next 12 months in the right data model and software platform will provide a competitive advantage. EVORA’s advisory team and our SIERA software platform can help real asset investors navigate their way through this emerging legislation, which is a key transition risk and opportunity as we move to a greener economy. 

Coincidentally, the 19th June is also Juneteenth, which is an internationally significant day for social equality. It marks the day on which the US Emancipation Proclamation was finally enforced in Texas in 1865. This brought to the end the abhorrent practice of “investment” in slaves as “property”, which directly affected three continents and has repercussions around the world up until the present day. 

Today’s Black Lives Matter movement is a tangible reminder of why ethical and environmental investment decisions made today do matter for generations. This has been true for slavery and will be true for our environmental and social governance now and in the near future. If we don’t get it right now, future generations may well look back on us and ask why we didn’t take more responsibility.

If you would like to attend a training session on EU Legislation and Taxonomy, please email where we can provide you with information on dates and times.

The UK voted to leave the European Union: What next for the sustainable built environment?

The UK has voted to leave the European Union and significant changes are set to take place for the sustainable built environment. The landscape is uncertain and the scale and reach of the impacts are still unclear.

It is necessary to identify and minimise the risks presented by the economic and political uncertainty. Nonetheless, the business case for sustainability should not be side-lined.

Major transformations in environmental policy are expected. The legislative landscape will be crucial for supporting the established link between property value and sustainability performance. Legislation linked to the EU Energy Performance of Buildings Directive (EPBD) are expected to be affected the most. This includes the Display Energy Certificates (DECs) and the Energy Savings Opportunity Scheme, which are linked to the Energy Efficiency Directive (EED).

The future is complex and there will be many opportunities and risks. Our main objective is to keep our clients informed and provide the most appropriate support, foster collaboration and help raise the business case for sustainability.

If you have any questions or would like to discuss any sustainability issues, please contact our experts today, who will be happy to advise you on the best course of action.


Photo: Gary Ullah Flick Creative Commons


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EU Referendum and the Environment: The Final Few Days

On Thursday the 23rd of June, the UK will decide on its membership of the European Union. Thus far, it has been a closely fought debate with arguments presented by the Brexit and Remain campaigns. One key discussion point is the future of the legislative landscape for the environmental sector. This touches on the built environment and wildlife, as well as climate change targets. On the whole, there is consensus that voters lacked information throughout the period leading up to the referendum to take sustainability and the environmental issues into account.

Drawing on a survey of key professionals within the industry, the latest webinar held by the Institute of Environmental Management and Assessment (IEMA) suggested that:

  • Sustainability professionals thought the EU provides greater stability for environmental policy;
  • The UK is a leader on environmental and climate change policy;
  • The EU presents opportunities for the circular economy and fosters collaboration

In a similar way, the Institute of European Environmental Policy (IEEP) concluded in its latest report, “Potential Policy and Environmental Implications for the UK of a departure from the EU” that the UK’s environmental policy has been partly influenced by its EU membership. The IEEP argued that Brexit would trigger uncertainty unless the UK had alternatives in place. Going forward, the UK will need to review its environmental policy and significant transformations are set to take place.

The legislative landscape will be crucial to spur investment within the industry. In relation to real estate, links between property value and sustainability performance have already been established and this realisation will be further supported through environmental legislation. The UK Green Building Council (UK-GBC) has recently commented on the possible impacts of the outcome of the EU referendum, with those requirements linked to the EU Energy Performance of Buildings Directive (EPBD) expected to be affected the most. This includes the Display Energy Certificates (DECs) and the Energy Savings Opportunity Scheme, which are linked to the Energy Efficiency Directive (EED).

What is most certain are the unknown consequences of the EU referendum. Environmental and climate change consequences for the built environment and relevant legislation will be key areas of change.

Burns et al (2016) presents a summary of the scenarios and uncertainty levels. It is clear that the leave scenario presents the greatest uncertainty, with the potential of key transformations in the UK’s environmental policy. It seems that sustainability professionals must await on the side-lines as the debate draws to a close.

Table 1 The EU Referendum and the UK Environment (Burns et al, 2016)

Whatever the outcome, specific legislation within the UK, such as the Minimum Energy Efficiency Standard (MEES) coupled with the potential of a reformed legislative landscape means that all businesses operating within the built environment must be prepared for all eventualities. Sustainability and productivity within the built environment are valued globally not least in the business sense, but on a social level as well.

As for EVORA, regardless of the outcome, we are well positioned to navigate our clients through the post-EU referendum environment. With offices in the UK and Europe and a depth of knowledge within the industry, we will continue to help our clients manage their risks and realise the business case for sustainability.

If you have any questions or would like to discuss any sustainability issues, please contact our experts today, who will be happy to advise you on the best course of action.


Burns, C., A. Jordan, V. Gravey, N. Berny, S. Bulmer, N. Carter, R. Cowell, J. Dutton, B. Moore S. Oberthür, S. Owens, T. Rayner, J. Scott and B. Stewart (2016) The EU Referendum and the UK Environment: An Expert Review. How has EU membership affected the UK and what might change in the event of a vote to Remain or Leave? Executive Summary

(Photo: Rock Cohen, Flickr Creative Commons)

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