New EU Sustainability Standards
On 10 November, the EU Parliament adopted the Corporate Sustainability Reporting Directive (“CSRD”). The Parliament’s vote sets the stage for an extensive review and expansion of corporate sustainability reporting in Europe, with the new rules to be implemented from the beginning of 2024.
The CSRD amends and updates the existing EU sustainability reporting framework, the 2014 Non-Financial Reporting Directive. It will vastly expand the number of companies covered by its reporting rules from around 11.700 currently to around 50.000 in the years to come. The new Directive primarily aims to bring sustainability and financial reporting on equal footing and to provide investors with comparable, reliable and accurate data.
CSRD – New Stipulations
The CSRD’s extended scope of application covers:
- All companies listed on regulated markets;
- All large companies which exceed at least 2 of the following thresholds:
- Balance sheet total of € 20.000.000;
- Net turnover of €40.000.000; and
- 250 employees.
- Listed SMEs; and
- Non-European companies with substantial activity in the EU (with a turnover over €150 mio within the EU).
Further, the new Directive introduces more detailed reporting requirements on topics ranging from environmental sustainability, social rights to governance factors, as well as sustainability-related impacts and risks. It also introduces an audit requirement for reported information and requires reporters to digitally tag the reported information to ensure digital access.
The Council is expected to adopt the proposal at the end of November, after which it will be signed and published in the EU Official Journal. 20 days after its publication, the CSRD will enter into force, with the Directive’s rules starting to apply as from 2024 as follows:
- From 1 January 2024 for large public-interest companies already subject to the non-financial reporting directive, with reports due in 2025;
- From 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive, with reports due in 2026;
- From 1 January 2026 for listed SMEs and other undertakings, with reports due in 2027. SMEs can opt-out until 2028.
The required disclosures under the CSRD will have to be made in accordance with a common framework of European Sustainability Reporting Standards (ESRS), which have been developed and recently approved by the European Financial Reporting Advisory Group (EFRAG).
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If you would like to know more about the CSRD and how it may impact you, then do not hesitate to get in touch with us.