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What the EU’s Next ESG Reporting System Means for Digital Infrastructure Operators

In the energy transition race, transparency is the next big thing. Companies across the board will have to be more open about their own journey and what their operations impact is on our society and environment. But not everyone is moving at the desired speed. To that extent, the European Council and European Parliament reached a provisional political agreement last June on the corporate sustainability reporting directive (CSRD) which is set to affect millions of companies operating on the continent including digital infrastructure players and accelerate that process. JSA Media Consultant João Marques Lima explains.

The proposal has been designed to address shortcomings in the existing rules on disclosure of non-financial information, which was of insufficient quality to allow it to be properly taken into account by investors.

Such shortcomings hinder the transition to a sustainable economy, the Council of the EU has written in a statement.

Bruno le Maire, France’s Minister for economic affairs, finance and industrial and digital sovereignty, said: “This agreement is excellent news for all European consumers. They will now be better informed about the impact of business on human rights and the environment.

“This means more transparency for citizens, consumers and investors. It also means more readability and simplicity in the information provided by companies, which must play their full part in society. Greenwashing is over.

“With this text, Europe is at the forefront of the international race to standards, setting high standards in line with our environmental and social ambitions.”

EU rules on non-financial information apply to all large companies and all companies listed on regulated markets.

These companies are also responsible for assessing the information at the level of their subsidiaries.

The rules also apply to listed SMEs, taking into account their specific characteristics. An opt-out will be possible for SMEs during a transitional period, meaning that they will be exempted from the application of the directive until 2028.

For non-European companies, the requirement to provide a sustainability report applies to all companies generating a net turnover of €150 million (~US$158 million) in the EU and which have at least one subsidiary or branch in the EU. This is set to impact several data centre and telecommunications companies who operate in Europe.

These companies must provide a report on their ESG impacts, namely on environmental, social and governance impacts, as defined in this directive.

The corporate sustainability reporting directive amends the 2014 non-financial reporting directive. It introduces more detailed reporting requirements and ensures that large companies are required to report on sustainability issues such as environmental rights, social rights, human rights and governance factors.

The CSRD also introduces a certification requirement for sustainability reporting as well as improved accessibility of information, by requiring its publication in a dedicated section of company management reports.

The European Financial Reporting Advisory Group (EFRAG) will be responsible for establishing European standards, following technical advice from a number of European agencies.

The application of the regulation will take place in three stages:

  • 1 January 2024 for companies already subject to the non-financial reporting directive;
  • 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive;
  • 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings.

 

Digital infrastructure path

Although the new rules will change the reporting methodology in the Union, for the majority of digital infrastructure operators the transition should be relatively simple.

That is because the sector has historically been quite prone to reporting its ESG transition on its own. 

Several organisations and groups have also emerged to foster reporting and somehow a standardisation of sustainability-linked moves across the sector. 

Such is the example of the Climate Neutral Data Centre Pact or the recently launch Climate Accord by the Infrastructure Masons. And the EU is not oblivious to these initiatives. 

For example, last year, signatories of the Climate Neutral Data Centre Pact met with the European Commission in Brussels, Belgium, to present and assess the first policy paper setting forth the regulatory and policy recommendations needed to build a green cloud and data centre industry for Europe.

The Climate Neutral Data Centre Pact, launched in January 2021, is a self-regulatory initiative designed to ensure that the cloud and data centre industry in Europe supports the continent’s goal of reaching climate neutrality by 2050.

The current signatories of the pact represent more than 90% of the industry in Europe and most of its key players.

The policy paper, developed at the request of the European Commission, includes a comprehensive set of 19 recommendations covering public procurement regulations, from the procurement and development of renewable energies that can be used by the cloud and data centre industry, to supporting the development of circular water and energy management, and recycling in the ICT sector.

According to the lobbyists, these recommendations for the European Union and its Member States “should drive faster change towards a climate-neutral cloud and data centre industry in Europe by 2030”.

Signatories of the Climate Neutral Data Centre Pact have agreed to implement measurable energy efficiency targets, purchase 100% carbon-free energy, prioritise water conservation, reuse and repair servers, and look for ways to recycle heat.

The recommendations set forth in this first policy paper highlight how the regulatory and political framework for the ICT industry in Europe should be adapted to facilitate the realisation of these objectives.

Alban Schmutz, chairman of CISPE (Cloud Infrastructure Services Providers in Europe), said: “The digitalisation of our society and economy is key to the green transition, and a green cloud and green data centres will need to underpin this transformation.

“This policy paper sets out how we can get there faster, and how the European Union and its Member States can ensure that Europe is on the lead in the fight for a net-zero and digital future.”

In a recent blog, Max Schulze, executive chairman of the Sustainable Digital Infrastructure Alliance (SDIA), wrote of the necessity of such initiatives and how these are built on the basis of transparency and open data within digital infrastructure. 

“Transparency and open data within digital infrastructure is the next step; it is a requirement for moving towards creating a sustainable digital infrastructure and economy,” he said.

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