CSRD: The EU Directive on Corporate Sustainability Reporting

Imminent compliance: The new EU Corporate Sustainability Reporting Directive is due for implementation soon. 

On November 10, 2022, the European Parliament approved by a large majority the new ESG reporting framework for companies, the Corporate Sustainability Reporting Directive (CSRD). The Council of the European Union is expected to adopt the proposal on November 28th, when it will be signed and published in the Official Journal of the EU. The directive will take effect 20 days after its publication and application of the rules will start between 2024 and 2028.

One of the cornerstones of the Green Pact for Europe, the CSRD was presented on April 21, 2021 by the European Commission to improve financial flows towards sustainable activities in the European Union. This new EU legislation requires all large companies to report regularly on their activities, to put an end to greenwashing and to increase corporate responsibility.

To achieve this, the CSRD is introducing reporting requirements that are more detailed than the current Non-Financial Reporting Directive (NFRD) - a regulatory framework that requires major public interest entities (PIEs) to report on their sustainability performance since 2018.

Implementation of the rules will start between 2024 and 2028:

• As of January 1, 2024, for public interest companies with more than 500 employees, already subject to the Non-Financial Reporting Directive, reporting is expected in 2025;
• As of January 1, 2025, for large companies that are not currently subject to the Non-Financial Reporting Directive (with more than 250 employees and/or EUR 40 million in turnover, and/or EUR 20 million in total assets), reporting is expected in 2026;
• As of January 1, 2026, for SMEs and other publicly traded companies, reports are due in 2027. SMEs may choose not to participate until 2028.
  
  

The European Commission is required to adopt the first set of reporting standards by June 30, 2023 on sustainable finance disclosure. A second set of sector-specific reporting standards will be adopted by June 30, 2024. Non-compliance will be sanctioned by each Member State. The text states that these sanctions must be "effective, proportionate and dissuasive." As soon as they come into force, almost 50,000 companies (15,000 in Germany alone) in the EU will have to comply with these detailed standards, which corresponds to 75% of the turnover of all EU companies.

Once the directive is effective, this regulatory framework will be a necessary step in making environmental and human rights an imperative for all companies.

Sources:

• “Corporate Sustainability Reporting.” European Commission - European Commission, ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en. Accessed 9 Aug. 2022.
• “The Global ESG Regulatory Framework Toughens Up.” White & Case LLP International Law Firm, Global Law Practice, 15 July 2022, www.whitecase.com/insight-alert/global-esg-regulatory-framework-toughens.