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ESG reporting in financial institutions

16 March 2022 | EN Reports
 

ESG reporting regulations make a new tool for the sustainable development of companies. The data from the report also turns out to be one of the most important criteria for obtaining investment loans from financial institutions. Banks operating in the EU are obliged to check the ESG report and make a decision on granting support based on the data included in the report. The ESG report is an innovative method of caring for the natural environment and promoting ecological solutions all over the world. 

Why is ESG reporting important for financial institutions? 

Funders must use certain criteria in the process of deciding to who to provide credit support. The ESG report becomes one of them. In the light of EU regulations, non-financial reporting is an important element of the company’s evaluation in terms of environmental awareness and social responsibility. In this context, ESG reporting resembles a system of connected vessels, where individual entities influence each other and lead in one direction of modernization of the business model. Financial institutions make the provision of support conditional on the company’s implementation of reliable ESG reporting, and entrepreneurs choose suppliers around the world who will meet stringent requirements. 

What is ESG compliance with the SFDR? 

The SFDR (Sustainable Finance Disclosure Regulation) has been valid in the EU since March 10, 2021, and aims to achieve uniform, transparent criteria in terms of analyzing risks for sustainable development. The SFDR standards take over most of the provisions assigned to ESG reports. But what does this mean in the context of individual companies? ESG compliance with the SFDR translates into greater integration of obligations towards financial institutions with corporate reporting. The SFDR applies only to the financial sector as part of its investment activities (but not to their lending activities). In this context, ensuring the compliance of the SFDR with ESG reports has a practical dimension, consisting of greater transparency and the possibility of comparing different forms of reports. 

Who is regulated by the SFDR? 

The SFDR applies to entities from the financial sector that conduct investment activities. The group of institutions covered by the new regulations includes banks, companies providing financial advisory services, as well as insurance companies offering insurance investment products. 

What are the obligations of the SFDR? 

The SFDR regulation means, first of all, new information obligations for the financial services market. Companies are required to publish a strategy for dealing with risks for sustainable development (risk identification, modeling methods for its reduction, as well as providing specific implementation activities supported by results). It also becomes necessary to integrate information on sustainability risks into pre-contractual information provided to clients. The implementation of the SFDR regulations necessitates the modification of the business strategy and the adaptation of information models to the requirements of sustainable development.