Sustainability Blog

Reliable Reporting Rules Rule

By Apurva Gosalia - Jun 27, 2022

On June 21, 2022, MEPs and European Union governments struck a provisional agreement on new reporting rules for large companies. The EU reached a preliminary political agreement on the Corporate Sustainability Reporting Directive (CSRD). 

The CRSD replaces the Non-Financial Reporting Directive (NFRD), which has been in force since 2018. The new directive requires a broad range of companies to include information on environmental, social and employee issues, as well as respect for human rights, anti-corruption and anti-bribery in their management reports. 

According to the preliminary agreement, the CSRD, like the NFRD, will apply to large public interest entities with more than 500 employees in the EU. However, its scope of application will be significantly expanded and in future will cover all companies with more than 250 employees and a turnover of more than €40 million. It will no longer matter if they are listed on a stock exchange. Companies based outside the EU but generate sales of €150 million in the EU will also have to submit a sustainability report in the future.

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>Read more about the CSRD here.

To meet the challenges associated with preparing the reports, the CSRD provides for a staggered introduction of the new obligations. The new regulations apply therefore to:

  • companies already subject to the NFRD from January 1, 2024,
  • companies that were not previously subject to the NFDR and are now newly covered, from January 1, 2025, and,
  • for listed SMEs, small and non-complex banks, and certain insurance companies, not until January 1, 2026,
  • special rules also apply to some SMEs. They have the option to choose, in the sense of an opt-out, not to apply the reporting requirements until 2028. 

In addition to the significant extension of the scope of the regulations, the CSRD also provides for further tightening of the reporting requirements. 

Firstly, the level of detail in the reports is to increase significantly. Among other things, applicable companies are to report more specifically in the future on the impact of their activities on sustainability aspects (“inside-out perspective”) and the influence of sustainability aspects on their business performance, business results and the company’s situation (“outside-in perspective”) in line with the so-called “double materiality” principle.

Secondly, in future external auditors will independently monitor and certify whether companies actually comply with the reporting requirements. Furthermore, reporting is to be based on uniform EU reporting standards in the future, with the European Financial Reporting Advisory Group (EFRAG), together with other EU agencies of the EU Commission, providing valuable preparatory work in this area. The aim is to make it easier for investors to obtain comparable information on a company’s environmental and social performance. The CSRD also aims to integrate financial and sustainability reporting more closely and put them on an equal footing. Therefore, in future the agreement provides for sustainability information published in a separate section of the company’s management report.

The agreement is only provisional so far. Both the European Parliament and the European Council have yet to officially approve it. Member states have 18 months after the directive comes into force to transpose the new requirements into national law.

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