Sustainability reporting: Corporates facing CSRD and other regulatory challenges

In our monthly Corporate ESG newsletter we breakdown the trending ESG* trades and themes, helping Corporates get ahead of the latest issues shaping the market.

Institutional developments: regulators / standard setters

The Biden administration announces plan to maximise sustainable purchases

The Biden Administration has announced the ‘Sustainable Product and Services’ procurement rule, a proposal to strengthen existing sustainable product requirements by directing government buyers to purchase sustainable products and services. The rule forms part of the Biden administration’s Federal Sustainability Plan, launched in December 2021. The proposal directs agencies to: (i) follow the US Environmental Protection Agency’s (EPA) Recommendation of Specifications, Standards, and Ecolabels for Federal Purchasing, which provides guidance across numerous purchase categories; and (ii) avoid procuring products containing PFAS chemicals, known as ‘forever chemicals’. This proposal has been released alongside the EPA’s announcement that it will expand its purchasing recommendation categories across new sectors to further encourage environmentally conscious decisions by federal government buyers.

The B20 summit’s key ESG themes

At the B20 summit in India – the official G20 dialogue forum with the global business community, established in 2010 – a specialist-led panel deliberated on how incorporating ESG practices could help identify risks to businesses and build greater resilience. Various themes were addressed, including nature and climate adaption; with regard to the former, panellists highlighted the need for businesses to shift towards becoming nature-positive as well as carbon-positive. The lack of resources being channelled towards climate adaption was also addressed, with panellists emphasising the criticality of the roles played by the private sector and local governments in emerging economies. Fitch’s latest insight on the matter highlighted the lack of focus on climate adaption as a matter of concern, arguing that at present bonds’ use of proceeds focus excessively on climate mitigation. Supply chains were another key topic of discussion; the importance of addressing their complexities in order to build business resilience was discussed, with panellists agreeing that “a company is as sustainable as its supply chain”.

EU Council announces agreement on nature restoration law

The European Council has reached an agreement on the establishment of a broad range of nature restoration measures including requirements to protect and restore at least 20% of EU land and sea areas by 2030, and all areas in need of restoration by 2050. This agreement defines the Council’s negotiating position on the Nature Restoration law proposed by the Commission in June 2022. The proposed law contains several nature restoration targets such as improvement and re-establishment of biodiverse habitats in various ecosystems, reversing the decline of pollinating insect populations, maintaining green urban space, restoring drained peatland under agricultural use, and restoring marine habitats, among others. The Council’s agreement allows the proposal to move forward to negotiations, although softens several of the EU Commission’s proposals. One of the key changes is an article that reduces the burden for renewable energy projects, allowing the planning, construction and operation of such projects to be deemed as having “an overriding public interest”.


Reporting: EU adopts rules requiring product emissions reporting for new import carbon tax

The European Commission has announced the adoption of reporting rules for importers of products under the Carbon Border Adjustment Mechanism (CBAM), the EU’s new carbon tax on imported goods, aimed at avoiding “carbon leakage” where companies shift production of emissions-intensive goods to countries with less stringent environmental regulations. Under the Implementing Regulation, importers will be required to report direct and indirect emissions released during the production of goods imported into the EU, supplemented with further details including the country of origin of the goods, the installations where they were produced, and the location of the main source of emissions. The Commission also published guidance to help with the practical implementation of the new rules, as companies will be required to begin data collection on embedded emissions in October 2023 and to report from February 2024 onwards. 

Reporting: Businesses are likely unprepared for EU CSRD, according to VinciWorks

A recent survey conducted by VinciWorks, a provider of online compliance training, has found that almost eight in ten businesses (out of 175 surveyed), that are likely to fall under the remit of the European Corporate Sustainability Reporting Directive (CSRD), have yet to commence preparations for reporting in line with the new ESG compliance requirements. Under this new EU directive, applicable businesses will be required to improve the quality of their data collection and reporting on issues such as Scope 3 emissions and value chain impacts on nature – an area that half of the survey respondents highlighted as the most significant challenge to CSRD compliance. The survey found only 23% of businesses to have started preparations, with a further 29% planning to do so within the next six months; this leaves the majority of businesses exposed to the risk of non-compliance from January 2024 onwards.

Reporting: Survey shows that businesses are grappling with the complexity of ESG reporting

The 2023 Global ESG Practitioner Survey, commissioned by Workiva, which polled over 900 professionals involved in ESG reporting, has produced results which illustrate the increasing significance of ESG in corporate reporting. The survey uncovered a disconnect in perception across senior levels, with 62% of C-level executives strongly agreeing that their companies apply the same level of diligence to ESG reporting as they do to financial reporting, as opposed to only 32% of managers and senior managers sharing this sentiment – a disparity indicating that businesses may not be fully prepared to comply with emerging regulations. The survey also revealed a growing belief among practitioners that technology is a key component of ESG reporting; 95% of respondents agreed that adequate technology is critical to managing ESG reporting processes and 97% took the view that technology and data will be key drivers of ESG strategy-related decisions.

Ratings and data: S&P remove ESG indicators from credit rating reports

S&P has announced that it will no longer include its ESG credit indicators in its credit rating reports. Originally introduced in September 2021, the ESG credit indicators outlined the influence of various factors such as climate risk on companies’ credit rating analysis. The debt rating agency used to publish scores from one to five (the former being the highest) to assess a company’s exposure to E, S and G issues; S&P’s new approach differentiates it from Moody’s, which still scores ESG criteria (one to five) within its credit rating analysis. S&P determined that the ESG-focussed analytical narrative paragraphs within credit rating reports are most effective at providing transparency on ESG credit factors. S&P has stated that the removal of its ESG credit indicators will not affect its ESG principles criteria or its commentary on ESG-related topics, including the influence of ESG factors on creditworthiness.

Ratings and data: Increased demand for ESG data, but data management challenges persist

A survey by Bloomberg and Adox Research covering over one hundred portfolio managers, climate risk executives and data management executives has shown that demand for ESG data is increasing. The survey found that the vast majority of executives (92%) plan to increase ESG spending by at least 10%, with 18% planning to increase their spend by 50% or more. The top priority areas for firms are ESG benchmarks and indices (29%), company-reported data (23%), ESG scores (20%), and sustainable debt (19%). 99% of executives agree that their organisations value ESG data, citing market forces and regulatory compliance as drivers. Firms are also contending with how best to manage ESG data, with over 70% taking an ad hoc or decentralised approach to acquiring and managing their ESG data. Only 29% of respondents take a firmwide approach for evaluating, implementing, and rationalising their ESG data.

Capital Markets

Primary Market

In the primary market, ESG factors have been leveraged to position the “trickiest” tranche / transactions and support executions over the course of August. For example, the VW Hybrid dual tranche saw larger demand than usual given the green format, whilst the Engie 19yr tranche was the longest of the 4 tranches (4/7.4/11 and 19yr) on offer. The combination of the green label and compelling level / coupon helped drive interest and asset managers were able to further diversify their holdings.

Secondary Market

For analysis and information on the Secondary Market, along with further updates on the Primary Markets, please take a look at the full monthly newsletter on Agile Markets. If you do not have access to Agile Markets, please contact us here.

Carbon Markets

Iberdrola have launched Carbon2Nature to reduce the global carbon footprint through nature-based solutions

Spanish power utility company Iberdrola has launched Carbon2Nature (C2N) with the aim of developing high-impact nature-based solution projects that reduce the global carbon footprint, improve biodiversity, and promote a sustainable economy.

The new company aims to capture and store in nature more than 61 million tonnes of CO2, which it will make available to its customers in the form of carbon credits.


Impact of SFDR downgrades on fund flows was limited according to ESMA

EU’s securities regulator, European Securities and Markets Authority (ESMA) found that downgrades of funds under the Sustainable Finance Disclosure Regulation (SFDR) did not negatively impact fund inflows.

Funds reclassified from SFDR Article 9 to Article 8 saw increased inflows compared to those remaining in Article 9 in the period of Feb 2022 - June 2023.

The report suggests investors focus on a fund’s sustainability profile rather than its specific SFDR disclosure regime, and ESMA noted no clear impact on downgraded funds in terms of inflows relative to non-downgraded ones.

Regular updates and tools to keep you informed

Regular articles from us on market-moving themes, and updates on what we are doing to further our ESG commitment.

For the full monthly newsletter login to Agile Markets. Don’t have access? Contact us here.

Or, for Corporates looking to discuss any of the above further, please reach out to our authors:

*For any unfamiliar terms used within this article please refer to our Insights glossary

This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes. It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in The Netherlands, authorised and supervised by De Nederlandsche Bank, the European Central Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, The Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, The Netherlands. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright © NatWest Markets Plc. All rights reserved.

scroll to top