Corporate Sustainability Reporting Directive gets green light for 2024

The EC has given the Corporate Sustainability Reporting Directive (CSRD) its final green light and more companies operating in the EU will now have to publish detailed information on sustainability issues from 2024. The CSRD has been in the pipeline for several years and replaces the Non-Financial Reporting Directive (NFRD). The new rules have now been finally approved by the EC and will be phased in over four stages starting from financial year 2024, which is one year later than some had forecast. So, companies already subject to the NFRD will report under the CSRD in 2025 for financial year 2024. Large EU companies that aren’t subject to the NFRD will first report under the CSRD in 2026 for financial year 2025. This covers all companies that meet two out of the following three criteria – balance sheet total exceeding €20m, net turnover of €40m and more than 250 employees. Listed SMEs, except micro undertakings, and captive insurance companies, will have to report under the CSRD in 2027 for financial year 2026. The final group of firms covered by the new rules are non-EU firms. Those with net turnover above €150m in the EU and at least one subsidiary or branch in the block will begin reporting under the CSRD in 2029 for financial year 2028. The CSRD introduces more detailed reporting requirements and ensures that large EU companies and listed SMEs are required to report on sustainability matters such as environmental rights, social rights, human rights and governance factors. The rules will apply to all large companies and all firms listed on regulated markets, except listed micro undertakings. These companies are also responsible for assessing information on their subsidiaries. The rules apply to listed SMEs. But an opt-out will be possible for listed SMEs during a transitional period that will make them exempt from the directive until 2028. Non-European companies with turnover above €150m and at least one subsidiary or branch exceeding certain thresholds also fall under the rules. EU minister for industry and trade Jozef Síkela said the CSRD means 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,” he said. Companies will be required to disclose a wide range of sustainability-related information under the CSRD, including: A brief description of the company's business model, strategy and sustainability risks and opportunities. Under the CSRD, in-scope companies must set clear ESG targets and annually publish their progress on these targets, as well as their transition plans (if any). As a result, the focus on sustainability is no longer optional or voluntary, but mandatory, and must be embedded in the company's long-term vision and strategy, and must also be applied to its policies. Implementation plans in relation to the transition to a sustainable economy, measures taken to limit global warming in line with the Paris Agreement and to achieve climate neutrality by 2050, and exposure to coal, oil and gas-related activities. Sustainability matters that affect the company and the impact of the company on sustainability matters (the so-called "double materiality" perspective). Greenhouse gas emission targets. Policies in relation to sustainability (including incentive schemes linked to sustainability matters). Due diligence processes implemented by the undertaking in relation to sustainability matters and the actual and potential adverse impacts of the company's operations and value chain. The European Financial Reporting Advisory Group (EFRAG) will be responsible for further developing the European Sustainability Reporting Standards (ESRS) that will inform reporting under the CSRD. It recently issued its first set of advice on the ESRS. In response, Ferma and other industry bodies said boards of directors must work more closely with risk managers and internal auditors to meet sustainability challenges faced by corporations. They concluded that there is a heightened risk of failing to meet legal obligations and market expectations if cooperation is not improved. Ferma previously told Commercial Risk it is concerned that interaction between the EU’s CSRD and the more recently announced Corporate Sustainability Due Diligence Directive could cause “headaches” for risk managers, as they try to help their companies deal with the two regulations. However, the European risk management federation believes the EC’s growing focus on sustainability is good news for risk managers in general, and will provide them with the opportunity to add real value and become more involved in setting sustainability strategies.

Corporate Sustainability Reporting Directive gets green light for 2024

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