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12° Nicosia,
06 December, 2021
 

K. Treppides & Co Ltd: Renewed European finance strategy and implementation of the action plan on financing sustainable growth

Cosmas Cosma
Director
K. Treppides & Co Ltd

The European Commission adopted on 21 April 2021, a comprehensive package of measures to help improve the flow of money towards financing the transition to a sustainable economy, whereas these measures will be instrumental in reaching climate and environmental targets as well as vital for economic recovery from the COVID-19 pandemic.

The package comprises a communication on directing finance toward the Green Deal and a proposal for a Corporate Sustainability Reporting Directive (CSRD), which was previously referred to as the Non-Financial Reporting Directive (NFRD) review.

The Commission proposal for a Directive on Corporate Sustainability reporting (CSRD) builds on and revises the sustainability reporting requirements set out in the NFRD to enhance the consistency of sustainability reporting requirements with the broader legal framework on sustainable finance, including the Sustainability-related Disclosures Regulation and the Taxonomy Regulation, and to reflect the objectives of the European Green Deal.

Overall, the CSRD proposes amendments to several existing legislations including the Accounting Directive, The Transparency Directive, the Audit Directive, and the Audit Regulation.

 In summary, the CSRD proposal:

  • Extends the scope to all large companies and all companies listed on EU regulated markets.
  • Introduces a general EU-wide audit (assurance) requirement for reported sustainability information.
  • It also introduces more detailed reporting requirements as part of the firm’s management report (e.g., information about their strategy, targets, the role of the board and management, principal adverse impacts of the undertaking, intangibles, and how firms have identified the information that they report), and a requirement to report according to a mandatory EU sustainability reporting standard. The Commission is proposing to develop standards for large companies and separate, proportionate standards for SMEs.

On 6 July 2021, the European Commission adopted several measures to increase its level of ambition on sustainable finance.

1. The new Sustainable Finance Strategy sets out several initiatives to tackle climate change, and other environmental challenges, while increasing investment and the inclusiveness of small and medium-sized enterprises (SMEs) in the EU's transition towards a sustainable economy.

2. The European Green Bond Standard proposal will create a high-quality voluntary standard for bonds financing sustainable investment.

3. The Commission adopted a Delegated Act on the information to be disclosed by financial and non-financial companies about how sustainable their activities are, based on Article 8 of the EU Taxonomy.

  1. Sustainable Finance Strategy

The European Commission adopted a new Sustainable Finance Strategy, which sets out several initiatives to tackle climate change and other environmental challenges while increasing investment in the EU's transition towards a sustainable economy. More precisely, the Strategy aims to:

  • extend the existing sustainable finance toolbox to facilitate access to transition finance,
  • improve the inclusiveness of small and medium-sized enterprises (SMEs) and consumers, by giving them the right tools and incentives to access transition finance,
  • enhance the resilience of the economic and financial system to sustainability risks,
  • increase the contribution of the financial sector to sustainability,
  • ensure the integrity of the EU financial system and monitor its orderly transition to sustainability and
  • develop international sustainable finance initiatives and standards.

Article 8 of the Sustainable Finance Taxonomy Regulation (SFTR), aspects of which shall apply from 1 January 2022, requires undertakings that fall within scope of application of the Non-Financial Reporting Directive (NFRD) to include information in their non-financial information statements on how and to what extent their activities are ‘associated with’ environmentally sustainable economic activities.

Article 8 also requires non-financial undertakings to disclose the proportion of their turnover derived from products or services associated with environmentally sustainable economic activities and the proportion of their capital and operating expenditure related to assets or processes associated with environmentally sustainable economic activities.

The NFRD at present applies to large public interest entities (PIEs) which may include organisations in the financial and non-financial sectors. It is therefore relevant, to banks, insurers, listed companies and other companies designated by national authorities as public interest companies, in each case if they have more than 500 employees.

Article 27 states that the reporting requirements in Article 8 should apply:

  • from 1 January 2022, as regards the first two environmental objectives (that is, climate mitigation and climate adaptation); and
  • from 1 January 2023 to the other four environmental objectives (water, pollution and control, circular economy, biodiversity).
  1. European Green Bond Standard

The Commission also published a legislative proposal for a European Green Bond Standard (EUGBS). The EUGBS aims to set the standard for how companies and public authorities can use green bonds to raise funds on capital markets, to allow for investments while meeting sustainability requirements and protecting investors from greenwashing. The new EUGBS will be open to any issuer of green bonds, including issuers located outside of the EU under four requirements:

  • the funds raised by the bond should be fully allocated to projects aligned with the EU Taxonomy.
  • there must be full transparency on how bond proceeds are allocated through detailed reporting   
  • all EU green bonds must be checked by an external reviewer to ensure compliance with the Regulation and that funded projects are aligned with the Taxonomy.
  • external reviewers providing services to issuers of EU green bonds must be registered with and supervised by the European Securities and Markets Authority (ESMA).
  1. Delegated Act supplementing Article 8 of the Taxonomy Regulation

The EU Taxonomy’s goal is to provide clear guidance on when an economic activity can be claimed to be “environmentally sustainable”. In the case of activities that make a substantial contribution to climate change mitigation, this means performance levels which substantially contribute to the EU’s 2030 and 2050 goals.

The European Commission also adopted the Delegated Act supplementing Article 8 of the Taxonomy Regulation, which requires financial and non-financial companies to provide information to investors about the environmental performance of their assets and economic activities.

According to the delegated act, non-financial companies will have to disclose the share of their turnover, capital and operational expenditure associated with environmentally sustainable economic activities as defined in the Taxonomy Regulation and the EU Taxonomy Climate Delegated act, formally adopted on 4 June 2021, as well as any future delegated acts on other environmental objectives. Financial institutions, mainly large banks, asset managers, investment firms and insurance/reinsurance companies, will have to disclose the share of environmentally sustainable economic activities in the total assets they finance or invest in.

Cyprus Green Transition, recovery, and resilience plan

The European Commission has on 8 July 2021 adopted a positive assessment of Cyprus's recovery and resilience plan. This is an important step towards the EU disbursing a total of €1.2 billion in grants and loans under the Recovery and Resilience Facility (consisting of €1 billion in grants and €200 millions in loans). The Cypriot plan forms part of an unprecedented, coordinated EU response to the COVID-19 crisis, to address common European challenges by embracing the green and digital transitions, to strengthen economic and social resilience and the cohesion of the Single Market.

The plan includes reforms relating to the introduction of green taxation, the liberalisation of the electricity market, facilitating energy renovations in buildings and accelerating electric mobility. The plan further includes a broad range of energy efficiency and renewable energy investments targeting households, enterprises, municipalities and the wider public sector and non-governmental organisations (‘NGOs'). The plan includes investments relating to the mass roll-out of smart meters as well as the EuroAsia Interconnector project, which should aid electricity generation from cleaner sources, in particular renewables. The measure with the largest contribution to the climate target is the ‘EuroAsia Interconnector' project, which, when completed, is expected to connect the electricity network of Cyprus to the Greek network in Crete.

The plan also includes measures that support the digital transition. Measures related to the digital transition are spread out throughout the plan. The plan includes considerable investments in connectivity, through a series of measures aiming to ensure coverage with very high-capacity broadband and a submarine cable to Greece to further enhance very high-capacity networks (VHCN). It also promotes digital education and skills by enhancing digital infrastructure and curricula in schools, training teachers, and investing in digital skills training programmes. It also contains projects expected to promote the digitalisation of public services and to introduce the G-Cloud as well as the digital transformation of basic public administrative functions (strengthening the electronic system for issuing building permits) and transformation of the courts system.

The Commission considers that Cyprus's plan includes an extensive set of mutually reinforcing reforms and investments that contribute to addressing all or a significant subset of the economic and social challenges outlined in the country-specific recommendations (CSRs) addressed to Cyprus. The introduction of withholding taxes to outbound payments of dividends, royalty payments and interest, particularly to low tax jurisdictions, is expected to address aggressive tax planning, in particular by multinationals.

By enabling investors and governments to re-orient investments towards more sustainable technologies and businesses, these measures will make the EU a global leader in setting standards for sustainable finance.

K. Treppides & Co Ltd is the largest independent consulting company in Cyprus with an established international presence and offices in Great Britain and Malta. Today the company employs approximately 200 professionals. It offers a full range of consulting, tax, audit, accounting services to groups, companies and investors operating internationally in a variety of financial and business sectors. The Company, which started its operations in 1985, has 36 years of expertise and an elite team of experienced executives who can guide and assist investors and businesses during the establishment process and subsequent investment activity in Cyprus and internationally.

Contact Details:
cacosma@treppides.com
www.treppides.com

Nicosia: Treppides Tower, Kafkasou 9, Aglantzia, CY 2112, Nicosia, Cyprus
Limassol: Andrea Kariolou 38, Ayios Athanasios, CY 4102, Limassol Cyprus
London: 7 Milner Street, London SW3 2QA
Malta: Level 1, Somnium, Tower Road, Swatar, Birkirkara BKR 4012

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