The European Union imposes ambitious goals on its member states related to environmental protection and climate change mitigation. This stems from the Paris Agreement, which stipulates that the European Union will become the world's first economy and society to become climate neutral by 2050. In accordance with the requirements of this agreement, the EU presented a long-term emission reduction strategy and climate plans. The Paris Agreement entered into force on November 4, 2016, after the condition for its ratification by at least 55 countries responsible for at least 55% of global greenhouse gas emissions was met. All EU countries have ratified the agreement. The EU also adopted the European Green Deal, a package of policy initiatives aimed at guiding the EU towards an ecological transformation and ultimately achieving climate neutrality by 2050.

Following these findings, the EU issued further legal acts aimed at bringing the EU community and economy closer to achieving the goal of climate neutrality. The EU imposed non-financial reporting obligations on numerous entities, including those related to corporate impacts on the natural environment and climate.

As we pointed out in the previous article, the basis for non-financial reporting regarding an entity's environmental impact is the CSRD . Companies will report on their impact on climate change, pollution production, natural resource management, water use, and energy efficiency.

The "ESRS 1" and "ESRS 2" Reporting Standards, established by the EU through delegated acts, are key to reporting. ESRS 1 focuses on presenting general principles for using the standards and the process of creating sustainability reports in accordance with the ESRS system. ESRS 2, on the other hand, contains a set of mandatory indicators that provide basic information about the reporting entity. They also introduce double materiality checks, meaning that such analysis considers not only the impact of a company's activities on sustainability but also how sustainability-related issues may affect the company's operations and financial results.

What information should entities disclose depending on a given indicator?

1. ESRS E1 – Companies should share information on their planned transformation to combat climate change and mitigation efforts. They should also share information on their energy consumption and decarbonization strategy. Additionally, the report should include information on their carbon footprint.
2. ESRS E2 – covers policies implemented to prevent and control pollution, including air, water, soil, and food. Entities should set targets and develop action plans to address pollution, including hazardous substances. Furthermore, companies are required to report perceived risks related to pollution-related accidents and sediments and address the financing of their exposure.
3. ESRS E3 – concerns policies implemented to manage water and marine resources, entities should indicate objectives and action plans for the protection of water resources.
4. ESRS E4 – covers policies implemented to manage biodiversity and ecosystems. Companies share information about their biodiversity and ecosystem goals and the action plans they have developed to protect biodiversity and ecosystems.
5. ESRS E5 – addresses policies implemented to manage resource use and the circular economy. Entities define targets and action plans for resource use and the circular economy to minimize waste. This approach should address sustainability, optimal use or reuse, refurbishment, remanufacturing, recycling, and nutrient cycling.

It is worth noting that environmental protection aspects are also addressed in Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (commonly referred to as the " Taxonomy "). The Taxonomy aims to align investments with the EU's 2030 climate and energy goals by redirecting capital from environmentally harmful investments to greener alternatives. It does not prohibit investment in environmentally harmful activities, but grants additional preferences for environmentally friendly solutions. It allows investors to easily compare information about companies' sustainable activities, which can encourage investment in a given area. An economic activity is considered environmentally sustainable, primarily when it does not cause significant harm to any environmental objective, operates in accordance with minimum guarantees, and makes a significant contribution to achieving at least one of six environmental objectives, i.e.:

1. mitigating climate change;
2. adaptation to climate change;
3. sustainable use and protection of water and marine resources;
4. transition to a circular economy;
5. pollution prevention and control;
6. protection and restoration of biodiversity and ecosystems.

Additionally, environmental issues are addressed by another legal act: the Corporate Sustainability Due Diligence Directive CS3D ). This EU regulation requires companies to make every effort to counteract the negative impacts of their business activities on, among other things, human rights and the environment. The CS3D regulations will apply to the first entities starting in 2027.

In summary, the EU's actions emphasize achieving climate neutrality within the established timeframe. This has resulted in extensive legislation in this area, which imposes stringent environmental requirements on entities operating in the European economy. Meeting these ambitious goals, which require business transformation and meticulous reporting of environmental impact, is no easy task.

This article is for informational purposes only and does not constitute legal advice.

Legal status as of October 9, 2024

Katarzyna Liput-Nowicka

Legal Counsel
+48 22 856 36 60 | k.liput@kglegal.pl

Mateusz Grosicki

Attorney, partner
+48 506 367 109 | m.grosicki@kglegal.pl