The European Union is on the verge of adopting the Corporate Sustainability Reporting Directive (CSRD) following a vote in the European Parliament on 10 November 2022. Compared to its predecessor, the CSRD expands the scope of companies required to disclose more detailed information regarding the impact of their activities on sustainability matters in their management report. The goal of the CSRD is to provide more transparency to the public on companies' sustainability motives and efforts and to help investors and other stakeholders evaluate the non-financial performance of companies.
Although there is a lot more to it, here are 10 Things you need to know about the CSRD:
- The CSRD captures a substantial larger scope of listed non-listed companies and non-EU companies with businesses in the EU being approx. 50,000 companies compared to about 11,700 companies falling under the current rules.
- On sustainability matters (i.e., environmental, social and human rights, governance and sustainability factors), the management report needs to disclose (i) the principal actual or potential impacts related to the company's own operations and (ii) the implementation and outcome of the due diligence process of the company's value chain, including its products, services, business relationships and its supply chain.
- The management report needs to provide a description of the role of management boards and supervisory boards regarding sustainability matters. It needs to outline the expertise and skills regarding sustainability matters in the fulfillment of roles.
- Moreover, the management report should be forward-looking, disclose set time-bound targets on sustainability matters and report on the progress of achieving such targets. Any environmental target needs to be substantiated with a statement confirming whether such target is based on conclusive scientific evidence.
- The double materiality reporting obligation is further clarified meaning that the management report should provide information on both the impacts of the activities of the company on sustainability matters and on the sustainability matters affecting the company.
- Companies are required to seek a "limited" assurance opinion by a statutory auditor of the reported sustainability information in the management report. Such opinion should gradually move to a reasonable assurance opinion, the latter being a more demanding assurance process. The European Commission envisages to implement standards for such reasonable assurance opinion before October 2028.
- The CSRD requires Member States to safeguard the quality of the assurance of sustainability reporting and makes it subject to investigation and sanctions.
- The CSRD requires companies' sustainability report to be drafted according to detailed, comprehensive, and sector-specific reporting standards (the so-called European Sustainability Reporting Standards), published in digital format, thereby allowing for a better overview and comparison of the reported sustainability information between companies.
- In-scope companies must make their management reports available on their websites, free of charge.
- The reporting obligations will be phased in between 2024 and 2028 and allow SMEs until 2028 to adapt to the new rules. The CSRD is intended to be rolled out in phases between 2024 and 2028 while allowing listed SMEs to adopt the rules by 2028. The CSRD is likely to be adopted by the Council of the European Union by the end of November and the first set of reporting standards are to be adopted by the European Commission in June 2023.
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