The European Union has published on 14 October 2024 an implementation plan for sustainable finance regulations, a comprehensive regulatory framework that will transform the reporting obligations of financial and non-financial companies over the next five years. This timeline, which ends in 2029, marks a new era of transparency and corporate accountability, with the aim of aligning economic and investment activities with the region’s environmental sustainability commitments.
Since the adoption of the Taxonomy Regulation (TR) in 2020, the EU has made rapid progress on its green agenda. This regulation provides a classification system to identify which economic activities can be considered environmentally sustainable. This aims to avoid greenwashing by ensuring that investments labelled as sustainable are indeed sustainable.
Table Timetable for implementation of sustainable financing for SFDR | TR | CSRD | BMR | EuGBR. Source: ESMA
Key steps in the timetable
- 2023: The beginning of change
The timeline began to take hold in January 2023, when non-financial companies started disclosing their key performance indicators (KPIs) in relation to the taxonomy’s climate targets. In parallel, financial companies also had to comply with the disclosure of KPIs in alignment with the climate targets. This marks the beginning of a process that will continue to expand in scope and stringency as new companies join the regulatory requirements.
- 2024: A critical year for finance
From 1 January 2024, financial companies will be required to report not only on climate targets, but also on other areas of environmental impact, such as sustainable water use, the circular economy and biodiversity restoration. This is a crucial step that demonstrates how the EU’s approach is not limited only to climate change, but encompasses a broader spectrum of environmental sustainability.
- 2025: Expanded obligations and revised SFDR
One of the most important milestones will be on 1 January 2025, when companies previously subject to the Non-Financial Reporting Directive (NFRD) will have to start complying with the new European Sustainability Reporting Standards (ESRS). These companies, mostly large corporations, will be required to provide much more detailed reports on their environmental, social and governance (ESG) impacts and activities.
In parallel, the Sustainable Finance Disclosure Regulation (SFDR) will be reviewed in mid-2025, which could lead to additional adjustments in disclosure obligations for fund managers and institutional investors. This regulation has been key to increasing transparency in financial products that are promoted as sustainable, helping investors to make more informed decisions.
In addition, by May 2025, the transition period for funds that existed prior to the implementation of SFDR will end, meaning that all funds will be under the same strict rules.
- 2026: Inclusion of new actors
Large companies that were not previously subject to the NFRD will have to start reporting under the ESRS standards from January 2026. This is a significant moment as it extends the reach of the regulations to more market players, further strengthening Europe’s position as a global leader in sustainable finance.
Later this year, finance companies will also be required to report KPIs related to additional taxonomy activities, covering areas such as pollution prevention and ecosystem restoration.
- 2027-2029: Impact on SMEs and global players
The implementation process will reach its climax between 2027 and 2029, when small and medium-sized enterprises and small and non-complex financial institutions will start reporting under ESRS on a mandatory basis, after having had the option to opt for voluntary compliance until then. This is particularly relevant as SMEs play a crucial role in the European economy and their inclusion is vital for sustainable finance to be extended to all levels of the private sector.
In 2029, companies from third countries will also be obliged to comply with European standards if they operate within the EU or are listed on its markets. This measure aims to homogenise regulations and avoid competitive imbalances between European and foreign companies.
A Future Marked by Sustainability
The timeline presented not only reflects Europe’s determination to meet its sustainability and climate goals, but also lays the groundwork for a structural transformation in how businesses and financial markets operate. The European Green Pact, adopted in 2019, is the backdrop to this plan, which aims to make Europe the first climate-neutral continent by 2050.
European companies are not only facing new responsibilities, but also opportunities. The implementation of the European Green Bond Regulation (EuGBR), which will have a key consultation in 2025, has the potential to catalyse a robust market for financing sustainable projects, contributing to the transition to a low-carbon economy.
In addition, increasing pressure from consumers, investors and regulators for companies to adopt sustainable practices will continue to drive innovation and competitiveness. Sustainable finance is not just a regulatory imperative; it is becoming a key differentiator for business success in today’s global economy.
Challenges and Expectations
However, this ambitious approach also poses challenges. Many companies, especially SMEs, may face difficulties in complying with the new disclosure requirements due to the complexity and cost involved in tracking and reporting sustainable data. The European Commission has pledged technical and financial support to help companies meet these obligations, but the process of adaptation will be difficult.
As the world moves towards greater awareness of climate and environmental risks, the EU is leading the way with an agenda that hopes to shape not only the future of the region, but also set a global standard for sustainable finance.
In this context of regulatory changes and increasing sustainability requirements, Laragon/ALL4, as a leader in environmental compliance solutions, is positioned to help our clients navigate this landscape. We offer a comprehensive approach that facilitates adaptation to European regulations, such as the SFDR, the TR and the CSRD, by providing advanced technological tools and specialised consultancy for ESG data collection, management and reporting. Laragon/ALL4 not only helps its clients to comply with KPI disclosure and taxonomy alignment obligations, but also enables them to optimise their sustainability strategies, reducing the risk of penalties and improving their competitiveness in the market. Backed by our industry expertise, we solve the complexity of regulatory compliance issues, enabling organisations to focus on sustainable growth while meeting the strictest transparency and corporate responsibility requirements.
