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  • Bredhill Consulting

Sustainable finance, CSRD & Taxonomy

An Imperative for the Economic and Environmental Future

In a world facing unprecedented environmental challenges, sustainable finance is emerging as a powerful lever for directing investment towards the most sustainable activities in order to encourage their development: activities that are economically viable, socially responsible and environmentally sustainable.

Sustainable finance has become a priority following the Paris Agreement on climate change and as part of the United Nations 2030 Agenda for Sustainable Development. A number of medium- and long-term objectives have been set:

  • redirect investors towards sustainable investments;

  • Integrate the notion of double materiality;

  • Establish a more transparent framework for all economic agents.

These growing needs call for changes in methodology on the part of sustainable finance players, notably through the strengthening of regulatory requirements in Europe and around the world.

The introduction of new European obligations - the European Green Taxonomy, the Directive on the publication of sustainability information by companies (CSRD) and the Regulation on the publication of sustainability information in the financial services sector (SFDR) - represents an opportunity for financial market players, who must seize it in order to ensure their mastery of ESG issues:

  • Taxonomy: norms / standards / classification of activities as environmentally sustainable / common language for all players, etc.

  • CSRD: extra-financial reporting by companies / security issuers / economic agents with financing needs on their ESG performance

SFDR: reporting by market players / ESG criteria on the issuing entities benefiting from investmentsIn order to respond to these regulatory changes, financial market players need to collect reliable and exhaustive information covering their entire investment universe. Currently, few companies provide the data needed to implement robust ESG practices. As a result, the use of external data providers with proprietary and specific methodologies is the norm. This leads to highly variable data sets from one supplier to another. With this in mind, it is vital to stress the need for data to be reported directly by the companies or issuers themselves, rather than estimated by third parties, in order to comply with the regulations in force and to ensure the reliability, consistency and quality of the data.

The European Green Taxonomy: A Framework/Classification for Sustainable Investment

The European Green Taxonomy is a regulatory framework that aims to define what constitutes an environmentally sustainable activity. The aim is to create a common language (standardised classification) for investors and companies on economic activities that have a positive impact on the climate and the environment, in order to direct capital flows towards these activities. The Taxonomy provides investors with a clear roadmap for allocating their resources responsibly. From renewable energy production to sustainable water management, the Taxonomy offers a precise classification of green economic activities, facilitating decision-making and transparency in sustainable investment.

Non-financial companies must first determine the proportion of their activities that are eligible, and then the proportion of their eligible activities that are also in line with the 3 criteria below

  • Contribute significantly to one of the 6 objectives (CSS, "Substantial Contribution Criteria")

  • Do no significant harm to the other objectives (DNSH):

  • Respect minimum international standards (MS)

The proportion of activities aligned with the taxonomy is shown by the publication of 3 KPIs (for non-financial companies), turnover, CAPEX, OPEX and by the GAR for financial companies.These KPIs are turnover, capital expenditure (CAPEX) and operational expenditure (OPEX) for non-financial companies and the Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR) for financial companies.

The SFDR: Strengthening transparency and sustainability risk management

The SFDR is a parallel regulation aimed at financial players. It aims to increase transparency on how investors integrate ESG characteristics into their investment decisions and how companies manage sustainability risks. The SFDR sets standards for the disclosure of information on the ESG aspects of financial products and investment advice, enabling investors to make more informed decisions and financial market players to report more transparently on their sustainable practices.

The general trend is towards increased efforts in responsible investment and the refinement of strategies to meet the ever higher expectations of investors, consumers, civil society and stakeholders (civil society, NGOs, consumers, etc.).

The CSRD: Strengthening the extra-financial transparency of companies

The CSRD aims to increase the transparency and comparability of information provided by companies on their sustainability performance. It introduces the concept of double materiality, recognising that companies have both internal and external impacts on environmental, social and governance (ESG) issues, while at the same time being influenced by these same factors. Dual materiality encourages companies to adopt a holistic approach to sustainability, taking into account both the external and internal risks and opportunities associated with their activities. However, its application can pose challenges, particularly when it comes to measuring and quantifying internal impacts, such as corporate culture or human resources management practices. Despite these challenges, integrating dual materiality into business practices can enable companies to better understand and manage their ESG risks, thereby strengthening their resilience and ability to seize emerging market opportunities. By taking into account the social and environmental impacts of their activities, companies can also enhance their reputation, build stakeholder trust and create long-term value for all stakeholders involved.

CSRD therefore improves the quality of the data available to investors and stakeholders and enables a more accurate assessment of the risks and opportunities associated with sustainable development, thereby encouraging more informed and responsible decision-making.

Outlook for Sustainable Finance

The adoption of the European Green Taxonomy, the SFDR and the CSRD marks a major turning point in the promotion of sustainable finance.In short, sustainable finance plays a crucial role in promoting a more sustainable and ethical economy by integrating environmental, social and governance considerations into investment decisions, and aims to have a positive impact on society, etc.As investors, companies and regulators adapt to these new regulatory frameworks, several trends are emerging in the field of sustainable finance:

  1. ESG integration: Investors are increasingly integrating ESG considerations into their investment decisions, recognising the potential for long-term value creation associated with sustainable practices.

  2. Impetus for a longer-term vision: in line with the growing desire and pressure from civil society to take account of the short- and long-term impacts of investments.

  3. Financial innovation: The emergence of new financial instruments, such as green bonds and sustainable funds, is opening up new opportunities to raise capital for sustainable development.

  4. Stakeholder engagement:Stakeholders, including consumers, employees and local communities, are putting increasing pressure on companies to adopt sustainable and responsible practices.

Bredhill: An Expert Partner in Sustainable Finance

Bredhill is positioned as a partner for businesses seeking to navigate the complex landscape of sustainable finance. With in-depth expertise in finance, regulation and sustainability, we offer bespoke solutions to help our clients meet the requirements of the EU Taxonomy, SFDR and CSRD.

Our core expertise includes:

  1. ESG risk assessment through our collaborative and results-oriented approach, we help our clients align their strategies by taking advantage of the opportunities offered by sustainable finance while successfully navigating an ever-changing environment.

  2. Development of sustainable & ESG offerings and product governance | Bredhill helps you create a range of products that meet client expectations.

  3. Deployment of operational models integrating ESG

  4. Design and industrialisation of ESG processes | We support you in the operational deployment of your processes in the operational deployment of your processes.

  5. Impact analysis and assistance in choosing ESG data providers for measuring responsible investments

  6. Structuring and formalising extra-financial reporting | Bredhill can implement sustainable investment strategies and prepare for publication in accordance with regulatory standards in order to "optimise your communication system and the management of your activities".

Sustainable finance offers a significant strategic pathway to drive the transition to a more resilient and inclusive economy, while generating long-term sustainable profits. With Bredhill as a strategic partner, companies can confidently meet the challenges of sustainable finance and seize opportunities to create long-term value for society and the business.


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