Navigating the jungle of ESG legislation: Top 5 regulations to watch

The ESG dynamic landscape is continuously evolving, and with it, new sustainability regulations emerge that companies must monitor closely to stay compliant. We met up with the team at Sharpfin, a full-service, modular SaaS solution designed for wealth and fund managers, to discuss current trends in ESG, and determined to bring awareness to the community. As developments in the ESG landscape are ongoing and still fairly new, it is pivotal to financial professionals to ensure that they are staying on top of the latest regulatory changes and updates. 

Natalie Kolmogorova, Marketing Manager at Datia, has identified five key regulations that deserve attention in the remainder of 2024. Here’s what you need to know: 

Corporate Sustainability Reporting Directive (CSRD) 

The CSRD is one of the most significant regulatory changes in Europe. It requires companies to disclose information on their environmental, social, and governance impacts and from July 2024, new legislation applies to reporting. This means that:

1. CSRD now applies to a broader range of companies, including non-European companies with substantial EU operations 
2. CSRD includes mandatory disclosure requirements aligned with the EU’s sustainability goals
3. Companies must provide verifiable data, ensuring they are transparent in their ESG performance

This is a pivotal time for companies to prepare for CSRD compliance, which will place them ahead of the curve. If you’re just beginning, now is the time to act. Learn more about the CSRD and its requirements by visiting this page. 

‍EU Taxonomy 

The EU Taxonomy Regulation is a classification system for sustainable activities, providing companies and investors with guidelines on what qualifies as environmentally sustainable. It is a crucial regulation to keep an eye on as it is a cornerstone of Europe's efforts to reach net-zero carbon emissions by 2050 and also helps companies improve their environmental performance with the standardized classification. It does this by:

1. Defining criteria for what constitutes a “green” investment
2. Guiding companies on activities that substantially contribute to six environmental objectives
3. Provides clear guidance and further helps to prevent “greenwashing” with stringent sustainability criteria

Staying updated on the EU Taxonomy will help companies enhance their environmental performance and align with Europe’s sustainability push. For insights on the EU Taxonomy framework and how to integrate it into your workflow, check out this webinar: EU Taxonomy: Navigating through the EU Regulatory Framework.

Sustainable Finance Disclosure Regulation (SFDR)

The SFDR requires financial market participants, such as asset managers and financial advisors, to provide detailed information on the sustainability risks and impacts of their investments. Most recently, the European Supervisory Authorities (ESA) published a joint opinion on the assessment of the SFDR. This includes: 

1. Introducing two product categories - “sustainable” and “transition” - to reduce greenwashing
2. Potential creation of a sustainability indicator for financial products 
3. Suggested improved disclosure and  a clearer definition of sustainable investments
4. Mandatory consumer testing before implementing any changes 

It is expected that stronger and stricter disclosure requirements will result in increased scrutiny and more comprehensive ESG reporting requirements that will heavily impact financial market participants. This means that going forward, asset managers will need to provide more granular data, further increasing transparency. 

To read more on the ESAs proposed improvements to the SFDR, visit the EIOPA website.

Corporate Sustainable Due Diligence Directive (CSDDD)

The CSDDD is a proposed EU regulation aimed at enhancing corporate accountability in terms of environmental, social, and human rights standards. It requires companies to integrate sustainability considerations into their governance and management practices, with a focus on due diligence to identify, prevent, and mitigate negative impacts along their supply chains. The most recent developments as of mid-2024 include: 

1. Ongoing negotiations have narrowed the scope of the companies covered and the extent of director liability
2. Obligations will differ based on company size, with potential exemptions for small and medium-sized enterprises (SMEs)
3. The directive is expected to come into force in 2025, following adoption by the EU Council

The directive is part of the EU’s broader European Green Deal and sustainability agenda, marking a significant step in corporate governance and responsibility. For the latest updates, visit the European Commission website.

MiFID II Sustainability Amendments 

The MiFID II sustainability amendments focus on enhancing the integration of ESG factors into financial advisory services. These amendments require investment firms to collect and assess client preferences related to sustainability. As of this year, there are key developments worth noting: 

1. The European Securities and Markets Authority (ESMA) plans to launch a Common Supervisory Action (CSA) to assess how well investment firms have integrated sustainability requirements
2. The CSA will focus on client preference handling and product governance in relation to sustainability

While core regulations have been in place since 2022, enforcement is expected to intensify in 2024, meaning financial firms must ensure robust implementation of these sustainability factors. To read about ESMA’s CSA developments, visit ESMA.

By staying ahead of these key ESG regulations, companies can not only ensure compliance but also demonstrate leadership in sustainability efforts. The regulatory landscape is complex and fast-changing, but proactive adaptation will position businesses for long-term success in a sustainable future.

For further information:

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Natalie Kolmogoroa
Marketing Manager, Datia | natalie@datia.app

Datia is a climate fintech company on a mission to empower investors' transition to sustainable finance, serving asset managers, asset owners, management companies, wealth advisors, and tech platforms.

Datia enables investors to stay focused on their investment strategy while optimising their sustainable finance process with traceable data, smart insights, and ready-to-share reports. Founded in 2019 and headquartered in Stockholm, Sweden, Datia has a customer network with over $200B in assets under management (AUM).

Helena Nabseth

‍Chief Marketing Officer, Sharpfin | helena@sharpfin.com

Sharpfin is a full-service, modular SaaS solution designed for wealth and fund managers. Its hyper-personalised, data-driven platform offers comprehensive client insights, faster onboarding, real-time data access, and greater operational efficiency. With tools for order and trade management, performance tracking, risk management, compliance, AI-driven bookkeeping, automated reporting, and client engagement, it helps wealth management firms to stay ahead in a changing market.

The financial industry faces significant challenges, such as high IT costs, complex administrative processes, and ever-evolving regulations. Sharpfin addresses these pain points by automating administrative tasks, allowing wealth managers to focus on their core mission: providing personalised service to their clients. By integrating advanced technology, the platform enhances client insights, improves operational efficiency, and reduces the overall cost of management.

Since its inception, Sharpfin has built a client base that includes reputable financial institutions like Evli, Strand Kapitalförvaltning, Simplicity, Consensus Asset Management, Stavanger Asset Management, and SilverDome.