In 2024, Europe made significant progress in the area of sustainability regulation, focussing on sustainability reporting, sustainable finance, ESG rating providers and combating greenwashing. These developments were detailed in the annual review by the Harvard Law School Forum on Corporate Governance, published on 26 January 2025.

Sustainability Reporting: implementing the CSRD Directive

One of the notable developments in 2024 was the implementation of the European Union's Corporate Sustainability Reporting Directive (CSRD). This directive significantly expands reporting requirements for companies, requiring disclosure of information related to environmental impacts, social issues and governance. The CSRD replaces the Non-Financial Reporting Directive and applies to a much wider range of entities, including large companies and those listed on European markets.

Under the new regulations, companies must report detailed information on greenhouse gas emissions, use of natural resources, diversity in management and corporate governance policies. These reports must be audited and published alongside the annual financial statements, providing greater transparency for investors and other stakeholders.

Sustainable Finance: strengthening the regulatory framework

In 2024, the European Union further strengthened its leadership position in sustainable finance by implementing the Regulation on Sustainability Disclosure in the Financial Services Sector (SFDR), which imposes strict transparency obligations on financial market participants, requiring disclosure of how ESG factors are integrated into investment decision-making processes.

The EU Taxonomy, a system for classifying sustainable economic activities, has also been extended to include new criteria and sectors. This taxonomy provides investors with a clear framework for identifying green investments and aligns capital flows with the EU's climate goals.

ESG Rating Providers: increased regulation for transparency

Recognising the importance of ESG rating providers in assessing the sustainable performance of companies, the European authorities introduced new regulations in 2024 aimed at increasing transparency and accountability in this sector. These regulations require rating providers to disclose the methodologies used, data sources and potential conflicts of interest, thus ensuring a more objective and comparable assessment of companies' ESG performance.

These measures aim to increase investor confidence in ESG ratings and facilitate the integration of sustainability factors into investment decisions.

Combating greenwashing: action against misleading claims

The phenomenon of greenwashing, whereby companies falsely or exaggeratedly portray their products or practices as environmentally friendly, was a major concern in 2024. The European Union has responded to this challenge by proposing the Corporate Sustainability Due Diligence Directive (CSDDD), which requires companies to identify and prevent negative human rights and environmental impacts in their value chains.

This directive establishes a due diligence framework for companies, requiring them to assess risks and implement appropriate preventive measures. Failure to fulfil these obligations can lead to significant penalties and legal liability for damages.

Outlook to 2025

Looking to 2025, companies operating in Europe must be prepared for compliance with new reporting and due diligence requirements. This involves developing robust ESG data collection systems, integrating sustainability considerations into business strategies and ensuring transparency in communicating with stakeholders.

Investors will also need to adjust their strategies to take account of new reporting standards and the assessments of ESG rating providers, ensuring that their portfolios are aligned with sustainability objectives and avoid the risks associated with greenwashing.

Read the full analysis here.