The Corporate Social Responsibility Directive (CSRD) is a new European Union legislative proposal that aims to tighten the sustainability and social responsibility reporting requirements of companies operating in the EU. The Directive seeks to build on the existing framework established by the Non-Financial Reporting Directive (NFRD) and align it with the objectives of the European Green Deal and the UN Sustainable Development Goals.

Company size

CSRD was proposed by the European Commission in April 2021 as part of a wider sustainability agenda that aims to set Europe on the path to a sustainable future. The proposed directive will require companies to report on a wider range of environmental, social and governance issues. It will apply to companies that meet at least two of the following criteria:

• more than 250 employees;
• annual sales of more than 40 million euros;
• total assets exceeding EUR 20 million.
  
  

Basic characteristics of reporting

One of the key features of CSRD is that it establishes a single set of standards for reporting on ESG issues. These standards are based on the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainable Development Accounting Standards Board (SASB). The standards will be legally binding on companies that fall within the scope of the directive. This will facilitate the comparison of ESG parameters across companies and industries and help ensure that companies are accountable for their sustainability commitments.

The CSRD introduces new reporting requirements for companies that include:

• environmental risks, such as risks associated with climate change, loss of biodiversity, protection of water resources;
• social risks such as human rights violations, occupational safety, supply chain and more;
• information on corporate sustainability management, how the board oversees sustainability issues.

Specific requirements include the obligation to set and report ESG goals, under which one can imagine a very important goal in the area of reducing greenhouse gas (CO2) emissions. Companies will be required to report annually on non-financial indicators, their long-term ESG goals, how ESG risks are managed and how sustainability issues are reflected in corporate governance.

The CSRD introduces some new corporate governance requirements. For example, it requires companies to establish a board-level sustainability committee and to appoint a sustainability officer who will be responsible for overseeing the company’s sustainability activities. These requirements are intended to ensure that companies have structures and processes in place to manage sustainability risks and opportunities.

Conclusion

CSRD will have a significant impact on corporate sustainability reporting and the wider sustainability agenda in Europe. It is a key part of the EU’s efforts to create a sustainable and resilient economy and is expected to help advance the goals of the European Green Deal and the UN’s Sustainable Development Goals. The proposed directive introduces a uniform set of standards for reporting on ESG issues and new requirements for corporate governance.

Due to the EU’s long-term goals, non-financial reporting will be an essential part of the everyday life of companies. In order to remain competitive, they will have to adapt to the new rules of the game and begin to monitor and report non-financial indicators and how to manage the risks associated with climate change.

Read more about the CSRD on the official EU website:
https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en

This article provides an in-depth analysis of the subsidies offered to US companies under the Inflation Reduction Act (IRA) and the potential international ramifications, particularly concerning relations with Europe.

The Inflation Reduction Act, signed into law by President Joe Biden, aims to stimulate the US economy by investing in clean energy and infrastructure while combating climate change. A significant aspect of the IRA is its provision of substantial subsidies and tax incentives to US companies involved in renewable energy and electric vehicle (EV) production.

Key Subsidies Provided by the IRA

1. Tax Credits for Electric Vehicles:
   The IRA offers up to $7,500 in tax credits for consumers who purchase electric vehicles. This incentive is designed to boost the domestic EV market and encourage consumers to switch from gasoline-powered cars to electric ones.
   However, to qualify for the full credit, the EV must meet specific criteria, including being assembled in North America and using a certain percentage of battery components sourced domestically or from countries with which the US has free trade agreements.
2. Clean Energy Production:
   Companies involved in renewable energy production, such as solar, wind, and hydrogen, receive substantial support. The IRA extends the production tax credit (PTC) and investment tax credit (ITC) for renewable energy projects, which can cover a significant portion of the project costs.
   These incentives aim to reduce the carbon footprint of the US energy sector and promote the transition to sustainable energy sources.
3. Manufacturing Incentives:
   The Act includes incentives for domestic manufacturing of renewable energy components, such as solar panels, wind turbines, and batteries. These manufacturing credits are intended to rebuild the US manufacturing base, create jobs, and reduce reliance on foreign suppliers.
   Specific incentives are also available for the production of critical minerals necessary for battery production, encouraging domestic mining and processing activities.
4. Energy Efficiency and Grid Modernization:
   The IRA provides funds to improve energy efficiency in buildings and modernize the electric grid. This includes grants and loans for upgrading building insulation, heating, and cooling systems, as well as investments in smart grid technologies to enhance the reliability and resilience of the power supply.
5. Carbon Capture and Storage (CCS):
   Companies investing in carbon capture and storage technologies can benefit from increased tax credits. The IRA enhances the 45Q tax credit, which rewards companies for capturing and storing carbon dioxide emissions from industrial processes and power plants.
   This measure aims to mitigate the impact of industries that are difficult to decarbonize by promoting technologies that can capture and sequester carbon emissions.

International Reactions and Trade Implications

The generous subsidies provided by the IRA have raised concerns among international trading partners, particularly the European Union. European leaders argue that these subsidies could create an uneven playing field by encouraging companies to relocate their operations to the US to take advantage of the financial incentives. This could potentially lead to a deindustrialization of Europe and strain transatlantic trade relations.

European officials have criticized the IRA, claiming it is protectionist and violates World Trade Organization (WTO) rules. The European Commission has been in discussions with the Biden administration to address these concerns, seeking assurances that European companies will not be unfairly disadvantaged.

There is the potential for a potential for a trade war if these issues are not resolved. European leaders have hinted at possible retaliatory measures if the subsidies lead to significant economic disruptions in Europe. This tension underscores the delicate balance between promoting domestic economic growth and maintaining healthy international trade relations.

In summary, the IRA’s subsidies are designed to stimulate the US economy, create jobs, and combat climate change by supporting renewable energy and electric vehicle industries. However, the international implications, particularly concerning trade relations with Europe, highlight the complexities of implementing such ambitious domestic policies in a globally interconnected economy. The ongoing dialogue between the US and its trading partners will be crucial in navigating these challenges and avoiding potential trade conflicts.