On 10 November 2022, the European Parliament officially adopted the Corporate Sustainability Reporting Directive (CSRD) – with a huge majority of 525 votes in favour of the regulation.
In (very) brief, this means that sustainability information will now be included in the corporate annual reporting process for businesses operating within the EU.
And for more detail, read on.
This post will cover:
The Corporate Sustainability Reporting Directive is a new EU regulation on how companies should report on their sustainability efforts – replacing the Non Financial Reporting Directive.
In April 2021 the European Commission adopted the Sustainable Finance Package, with the aim of improving the flow of funds in the European Union towards sustainable business activities.
Within the Package, one of the measures was the Corporate Sustainability Reporting Directive (CSRD), which proposed that all large companies operating in the EU should be obliged to report on their environmental impact every year – aiming to standardise and make mandatory corporate sustainability reporting, for increased accuracy and transparency on business environmental impact and to increase business climate action.
The EU Parliament reached a provisional agreement to adopt the CSRD in June 2022, and officially voted to adopt the CSRD on 10 November 2022. The legislation will come into effect for the fiscal year 2024, with the first reports due in 2025.
The CSRD obliges all large companies operating in the EU to report on their sustainability performance, which means around 50,000 companies will now be reporting annually on sustainability – around 75% of the total turnover of all EU companies. The Non Financial Reporting Directive currently requires 11,700 companies to report, so it’s a big step up in which companies are included.
‘All large companies operating in the EU’, in practice means:
Although the legislation will be in force from 2024, there will be a phased approach to introducing reporting across companies:
It’s also expected that non-European companies with branches or subsidiaries with a turnover of over €150 million in the EU will also have to report, to be brought in at a later date (currently expected from 2029).
Corporate sustainability reporting will need to meet new EU Sustainability Reporting Standards, developed by the European Financial Reporting Advisory Group – the first draft of which was approved on 15 November 2022.
The Standards are likely to include:
We also know that reports will need to be submitted digitally, and that they will be subject to independent, third-party auditing and certification to ensure sustainability reporting by companies is reliable and comparable.
If your company is included in those that will need to comply with the Corporate Sustainability Reporting Directive, we’d recommend starting to get everything in order sooner rather than later.
And, we’re likely to see more and more corporate sustainability reporting legislation come into force globally over the next few years for all kinds of businesses – so even if your company won’t be required to report on environmental impact by the CSRD, it’s still a good idea to get ahead of the game. Plus, beyond the legislation, there’s a very strong business case for working on sustainability anyway – from risk management to customer loyalty to employee satisfaction and more.
There are plenty of actions to get started with to put you in good stead for the changes:
As a first step, developing an impactful sustainability strategy which lays out how you will approach sustainability – including all of the actions above – how it aligns with your overall goals and vision, and how different roles within the business will contribute to this, will ensure that there’s strategic alignment and buy-in on sustainability.
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