European legislation on ESG practices encompasses three major regulatory acts: the Taxonomy Regulation (referred to as "TR"), the Sustainable Finance Disclosure Regulation (referred to as "SFRD"), and the Non-Financial Reporting Directive (referred to as "NFRD").

TR aims to identify activities deemed sustainable or unsustainable and assess the sustainability of a company's objectives, providing investors with increased transparency regarding activities serving these objectives. It establishes a classification system for sustainable economic activities.

SFRD requires credit institutions and financial market participants to include sustainability aspects in their investment decision-making process. Sustainability risk is defined as an event or condition, environmental, social, or governance-related, which, if it occurs, could significantly impact the value of the investment.

NFRD sets forth non-financial reporting requirements on ESG factors for companies with more than 500 employees. Currently, a draft directive is in progress, known as the Corporate Sustainability Reporting Directive (referred to as “CSRD”). CSRD extends NFRD's reporting requirements to all companies with 250 employees or more and listed companies, including mandatory sustainability reporting standards that will incorporate data from TR. The European Parliament recently adopted CSRD, pending publication in the Official Journal of the European Union.

CSRD introduces measures aimed at addressing the climate crisis, transforming the European Union into a modern, resource-efficient, and competitive economy with net greenhouse gas emissions by 2050. Thus, ESG and sustainability concepts are becoming increasingly central, shifting from the periphery to the mainstream, in the context of the relationship between NFRD and CSRD. Therefore, it is imperative for companies to analyze and implement these concepts as quickly as possible.

National legislation on ESG practices focuses on two regulatory acts, namely Order No. 1938/2016 amending and supplementing certain accounting regulations and Order No. 3456/2018 amending and supplementing certain accounting regulations, issued by the Ministry of Finance of Romania, in accordance with the transposition of NFRD into national legislation.

These two regulatory acts pertain to the obligation of companies with an average of over 500 employees and either total assets exceeding EUR 20 million or net turnover exceeding EUR 40 million to include ESG-related information in their annual reports. For example, the non-financial statement should include details regarding the current and anticipated impact of operations on the environment, the use of renewable and non-renewable energy, greenhouse gas emissions, water consumption, and air pollution.

In April 2022, the Bucharest Stock Exchange issued an ESG Reporting Guide, providing support to companies in aligning with investor and partner expectations regarding ESG reporting. Companies are expected to comply with NFRD requirements and anticipate CSRD requirements, emphasizing the importance of preparation and implementation of these concepts.

Additionally, efforts are underway in Romania to implement the Sustainability Code and the National Circular Economy Strategy. The Sustainability Code represents a reporting tool for companies based on a German model, facilitating the preparation of sustainability statements and is expected to be used by the end of 2022. Simultaneously, the National Circular Economy Strategy, recently adopted by government decision, aims to guide Romania towards a circular economic model for efficient resource management.