28 November 2022 10:30

The Council gave its final approval to the corporate sustainability reporting directive (CSRD).

This means that companies will soon be required to publish detailed information on sustainability matters. This will increase a company’s accountability, prevent divergent sustainability standards, and ease the transition to a sustainable economy.

In practical terms, companies will have to report on how their business model affects their sustainability, and on how external sustainability factors (such as climate change or human right issues) influence their activities. This will equip investors and other stakeholders better for taking informed decisions on sustainability issues.

The CSRD strengthens the existing rules on non-financial reporting introduced in the Accounting Directive by the 2014 non-financial reporting directive (NFRD) , which are no longer tailored to the EU’s transition to a sustainable economy.

New reporting rules for companies

The CSRD introduces more detailed reporting requirements and ensures that large companies and listed SMEs are required to report on sustainability matters such as environmental rights, social rights, human rights and governance factors.

The new sustainability reporting rules will apply to all large companies and to all companies listed on regulated markets except listed micro undertakings. These companies are also responsible for assessing the information applicable to their subsidiaries.

The rules also apply to listed SMEs, taking into account their specific characteristics. An opt-out will be possible for listed SMEs during a transitional period, exempting them from the application of the directive until 2028.

For non-European companies, the requirement to provide a sustainability report applies to all companies generating a net turnover of EUR 150 million in the EU and which have at least one subsidiary or branch in the EU exceeding certain thresholds. These companies must provide a report on their environmental, social and governance (ESG) impacts, as defined in this directive.

The European Financial Reporting Advisory Group (EFRAG) will be responsible for developing draft European standards. The European Commission will adopt the final version of the standards as a delegated act, following consultations with EU member states and a number of European bodies.