The reformed rules will address the main issues of quality, consistency and comparability of sustainability information published by companies under existing EU legislation, as evidenced by studies published by the Corporate Transparency Alliance.
The CSRD clarifies transparency obligations for large companies operating in the EU in terms of their impacts, risks and opportunities on sustainability – including their decarbonisation and performance plans – and mandates the development and adoption of mandatory ESG standards for corporate sustainability reporting.
This reform is the basis for ensuring the success of the European Sustainable Financing Agenda, the EU Green Agreement and the REPowerEU plan: relevant and comparable sustainability data are a prerequisite for direct financial flows to support the transition to a zero-net EU economy. It is also necessary to ensure that financial market participants comply with their own obligations, as well as to monitor progress towards the EU’s climate and biodiversity and human rights goals and commitments and reduce the EU’s dependence on fossil fuels, and therefore Russia (for which we need data). on energy consumption and production of companies, renewable energy production, etc.).
5 key changes and missed opportunities:
- The scope of the legislation is extended to all large listed and unlisted companies with more than 250 employees. The EU Commission estimates that this includes around 50,000 companies, leaving more than 99% of companies in the EU. Listed SMEs were included in the original mandatory reporting proposal from 2026 according to simplified standards (recommended by many studies and research, including EU Commission studies and research). The final text allows them to participate by 2028, which will have major implications for the readiness of SMEs to benefit from sustainable financial flows and their relationship with banks, procurement opportunities or the requirements of business partners. The European Parliament, as well as investors, civil society and academic studies, have recommended an approach to defining high-risk sectors and extending the scope to small and medium-sized enterprises in these sectors.
- The reporting obligations of companies have been clarified, in particular for the disclosure of:
- plans for the transition to climate neutrality by 2050, including actions, investment plans and exposure to fossil fuels;
- Time-bound targets related to sustainability issues and companies’ progress towards them (including greenhouse gas reduction targets);
- Information on due diligence on sustainability, ie the transparency of the process and the adverse impacts identified in the company’s value chain and the measures taken to address these impacts.
- A key measure of the CSRD is the development and adoption of mandatory ESG standards based on dual significance (ie disclosing the impacts of companies on the planet and people, as well as the risks and opportunities for society arising from sustainability issues).
- According to the CSRD guidelines, this will include quantitative and qualitative data and will include both retrospective and forward-looking information;
- Draft EU standards (sectoral agnostics) have been published and are open for public consultation until August. These have been designed by a group of experts from many stakeholders to be feasible, flexible and feasible by companies. The expert group, which is part of the new EFRAG Sustainability Reporting Pillar, will now continue with technical proposals for sector-specific standards.
- In terms of timing, the agreement reached by the co-legislators proposes a deferred application until 2024 for companies already covered by existing legislation (EU Non-Financial Reporting Directive) and until 2025 for other large listed and unlisted companies (over 250 employees). While the original proposal was to be transposed into national law by the end of 2023, the agreement now covers an 18-month transposition period. It is essential that Member States make companies clear by making the necessary changes by January 2024.
- An assessment of the implementation of the Directive and the adoption of standards by SMEs is required of the European Commission by 2028, which is too late given that voluntary measures have proved ineffective and a large proportion of companies in highly polluting sectors are not covered by the CSRD.
The Alliance for Corporate Transparency welcomes the above developments in line with NGO policy recommendations and regrets the missed opportunities.
Susanna Arus, EU Communications and Public Affairs Manager at Frank Bold, says:
“It is imperative that Member States provide clarity to companies by making the necessary changes to national law by January 2024 and ensure that all large companies (not just those already covered by the EU Non-Financial Reporting Directive) are required and able to report financially. 2024. Progressive implementation would risk creating a two-speed Europe that puts some countries and companies at a disadvantage in accessing sustainable financial flows. “
Giorgia Ranzato, Sustainable Finance Officer at T&E, a member of the EFRAG Expert Group and the Platform for Sustainable Finance, states:
“Despite the exclusion of SMEs and the delayed entry into force, with this agreement the EU is establishing itself as a world leader in sustainability reporting. But the devil is in the details: all the specific disclosure requirements have yet to be defined. We have seen this with the taxonomy regulation: ambitious first-level legislation and then weak criteria that cancel all work. Let us hope that the Commission and the Council do not destroy this file either. “
Mirjam Wolfrum, Director Policy Engagement, CDP Europe, said:
“CSRD is a turning point for bold corporate disclosure rules that will force companies to set emission and natural targets in line with scientific knowledge. CDP companies are well prepared for the new requirements. We have always developed and adapted our questionnaires in the light of new standards, priorities and regulations, and we will continue to do so. “
In response to the agreement, Elisa Peter, Director of Publish What You Say, said:
“We welcome the attention that legislators are paying to high-risk sectors. A fair transition will not be possible without full transparency on the part of oil, gas and mining companies regarding their mining projects. The sustainability disclosure rules that will now be drawn up to implement yesterday’s agreement are crucial for the people, the climate, the environment and good governance in oil, gas and mineral extraction countries.
Regarding the outcome of the CSRD trilogue, Isabella Ritter, EU Policy Officer at ShareAction, comments:
“Finally, the introduction of mandatory and Europe-wide sustainability reporting standards will provide investors with comparable and qualitative sustainability data to better consider the impact of their investments. Thanks to standards covering the entire spectrum of the ESG and following a dual significance approach, investors will be able to reorient capital flows towards more sustainable activities. In particular, information from companies on transition plans, including greenhouse gas reduction targets, will provide investors with much-anticipated information on the climate ambitions of their companies in which they invest. “
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