ESG Legal Officer – the Busy Face of Poland’s Sustainable Revolution

The sustainable revolution is being pursued by European regulators using primarily legislative and supervisory mechanisms. For this reason, almost every ESG project must include an element of legal analysis and compliance assurance. Additionally, the burden of proper interpretation is particularly large in financial sector institutions.

The first step of ensuring well-managed ESG projects in the financial sector today is to define the applicable legal requirements and so-called "soft laws" that should apply. A common, albeit reasonable, first question for the project is what scope of activities is mandatory for a given organisation, and what scope can be subject to individual decision. It seems that building potential strategies and competitive activities only after considering this question is indicative of a well-planned action.

The above, while a regular feature of many of the activities motivated by the regulator in the financial sector, is particularly challenging in the case of ESG. The European legislator has given lawyers and compliance officers a rather difficult task. Over the past two years, a number of regulations have been published – eg, the Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDD) and the EU Taxonomy – alongside a number of delegated acts, recommendations, guidelines (eg, on ESG Suitability Assessment) and amendments to existing regulations (eg, to the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive (IDD)).

The sheer dispersion of these regulations can be problematic. This is perfectly illustrated by the results of a PwC study, in which 50% of organisations declare that they are not up to date with all ESG requirements.

Getting to the stage of interpreting regulations is not at all easy. It should be noted that the various regulations were prepared at different times. Therefore, it is relatively easy to identify some inconsistencies or uncertainties today, starting with the definitions derived from these pieces of legislation, the scope of the regulations applicable to a given organisation, or the shape of the duties imposed on them. In addition, some of the requirements have been postponed for financial institutions and other businesses, which creates problems in terms of the availability of information. The implementation of some of the obligations still requires clarification from regulators or the issuance of relevant guidelines, which are not always available in the timeframe for the implementation of EU regulations (eg, the lack of final European Securities and Markets Authority guidelines on ESG adequacy assessment). This has had a very strong impact on implementation projects carried out in organisations subject to the requirements in question, including in interpreting the nature of individual obligations. Answering basic regulatory questions poses problems and can lead to different approaches among individual institutions in the market.

This is definitely not a desirable situation. This trend is visible in the framework of the PwC study, since only 31% of institutions were at the stage of implementing the requirements at the time of the survey. Such delays often result from interpretive uncertainties.

The implementation of certain regulatory obligations (eg, preparation of non-financial reports, assessment of customers' ESG preferences) requires relevant data to be obtained from customers. According to information provided by financial institutions, they also face some difficulties at this point. It is not without reason that banks point to the poor quality of counterparty disclosures as one of the key challenges in implementing ESG requirements (responses from 56% of respondents indicate this).

Both the data collected and market experience show that the legal aspect of the ESG revolution is a big challenge. It can be hypothesised that, as in the case of other regulatory and ESG revolutions, there has to be a phase of uncertainty in order to form a unified approach based on binding interpretations. However, what the path will look like will depend on the involvement of the industry and regulators.

It seems that it is necessary to positively assess the activities of Polish industry organisations in this context, which undertake the challenging task of developing consistent interpretations of ESG regulations, despite the growing challenges, thus often relieving regulators.

One should not forget the potential consequences of incorrect work in terms of legal interpretations. Mistakes can lead to the formation of bad assumptions in the implementation of an institution's strategic projects and, in extreme cases, even to accusations of greenwashing.