Disclosure and Taxonomy Regulation - the social aspects

Due diligence of social (and other) aspects of investee companies has been thrown sharply into the spotlight by various development, including the EU's Sustainable Finance Disclosure Regulation and its 32 mandatory "principal adverse indicators" (and 18 optional ones!). The response by those caught within scope of this regime has generally been to: (i) indicate that the data required to be disclosed is often not available; and (ii) begin a review of those internal processes that go to the collation, integration and management of such issues. 

Following hot on the heels of the Sustainable Finance Disclosure Regulation is the Taxonomy Regulation. Given it's focus solely on environmental objectives and economic activities being "environmentally sustainable", many would have been forgiven for assuming that this second piece of legislation was not relevant from the perspective of social issues. How wrong they would be. The requirements of the Taxonomy Regulation include that the undertaking invested in abide by certain "minimum safeguards", set out as including alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. Again, for those enough ahead of the curve to be considering taxonomy compliance, this has prompted a review of existing processes and the question of how they demonstrate compliance with this requirement in practice. 

In both cases, there has been an instinctive reach towards due diligence checklists. There is, in principle, nothing wrong with this approach. However, particularly in relation to the Taxonomy Regulation, more is required. And while hiring a consultancy to conduct due diligence is not a silver bullet, firms grappling with either regulation could do worse than to look to the example set in this article.