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European Commission’s Corporate Sustainability Reporting Directive
Summary - the new CSRD details the future of ESG reporting in the EU
On 21 April 2021, the European Commission published its proposal for a Corporate Sustainability Reporting Directive (CSRD). With this proposal, the European Commission aims at bringing sustainability reporting on a par with financial reporting.
This followed the consideration that the current legislation, the NFRD does not meet the information needs of users of non-financial reporting.
Key Aspects:
Scope and First-Time Application
- Extension of scope of non-financial reporting to all large undertakings/ large groups and all listed (via debt or equity) undertakings on regulated EU markets, except listed micro-undertakings
- The extended scope will also include EU subsidiaries/subgroups of parent companies outside the EU
- First-time application for FYs beginning on or after 01.01.2023
Sustainability Reporting
- Clarification that double materiality principle applies
- Specified, standardised content of reporting requirements with separate Sustainability Reporting Standards for ESG. Developing with EFRAG; aligning with existing frameworks, taxonomy regulation, disclosure regulation (if possible)
- Sustainability reporting becomes a mandatory part of the (consolidated) management report
- Mandatory digital preparation of financial statements and management reports
Assurance and Supervision
- Assurance obligation for sustainability reports - limited assurance
- Any independent assurance service provider permitted to perform assurance
- Responsibility of the audit committee is extended to the monitoring of the sustainability reporting process incl. the effectiveness of the company’s internal quality control and risk management systems
- Sanctions on companies not complying with the reporting requirements; extension of enforcement to sustainability reporting
Timetable of Key Global ESG Announcements, Implementation and First-Time Application of the CSRD
The key proposals include a massive broadening of scope of the NFRD from 11,600 to approximately 49,000 entities in the EU including foreign subsidiaries. Companies coming under the CSRD would be:
All companies listed on EU-regulated markets
- including companies incorporated outside the EU but listed on an EU-regulated market.
- exception: micro-entities
Large companies not listed
Large companies defined as exceeding at least two of the following at the balance sheet date:
- balance sheet total: €20m
- net turnover: €40m
- average number of employees during financial year: 250
Subsidiaries/subgroups
that are EU-listed or large, under parent companies outside the EU are also in scope. In addition, all EU parent companies of large groups should prepare sustainability reporting at group level.
Exceptions
SMEs may use separate sustainability reporting standards for SMEs and do not have to start reporting until three years after the effective date (i.e. 1 January 2026)
Possibility to exempt subsidiaries/subgroups if:
- they are included in the consolidated management report of their parent company and
- the consolidated management report is drawn up under regulation that is considered equivalent to the manner required by the sustainability reporting standards.
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