EU deal for mandatory sustainability standards and rules for companies ESG reporting: Member States to ensure swift implementation
The European Commission, Parliament and Council reached an agreement for the new EU Corporate Sustainability Reporting Directive (CSRD) that clarifies disclosure obligations for large companies and listed SMEs, and mandates the development and adoption of mandatory EU corporate sustainability reporting standards.
The new rules require companies to disclose their transition plans to reach climate neutrality by 2050, including actions and investment plans. Information must be provided for time-bound targets related to sustainability issues and companies’ progress to achieve them (including GHG emission reduction targets), as well as disclosure of companies’ due diligence process and adverse impacts identified in their value chains, and actions taken to address such impacts.
The EU standards will be grounded in the double materiality principle, i.e. covering both impacts of the undertakings on people and the plant as well as sustainability-related risks affecting them, will include quantitative and qualitative data, and will cover both retrospective and forward-looking information.
The CSRD reform and EU standards will tackle the problems identified in existing legislation to address issues of quality, consistency and comparability of sustainability data.
The Council and European Parliament need to rubber stamp the deal and Member States must transpose these changes into national law (18 months after publication in official EU Journal).
It is imperative that Member States provide clarity to companies by making the necessary changes before January 2024 in order to ensure that companies are required and able to report for the financial year of 2024 as anticipated in the CSRD. Furthermore, Member States will have to decide if they use the option provided by the CSRD to delay the application of the new rules to large non-listed companies which are not presently subject to the Non-Financial Reporting Directive (CSRD predecessor). Such a delay would risk creating a two-speed Europe that would put some countries and companies at a disadvantage to access sustainable finance flows.
Any further delay will have severe consequences on achieving European efforts charted in the REPowerEU plan, the Renewed Sustainable Finance strategy, the EU Green Deal and the EU Climate Law as well as hamper the ability for financial market participants to contribute to support the sustainability transition of our economy (investors and banks need access to this information to make informed decisions and comply with their own regulatory obligations - see the multi-stakeholder statement published this January on the urgency to implement the CSRD and EU standards by 2024 here).
Without adequate and comparable sustainability data, finance flows won’t be righty allocated to achieve the transition to a net-zero economy, the EU objectives and commitments on climate, biodiversity and human rights, and to cut down the EU’s dependency on fossil fuels (the EU Commission has pledged to end EU reliance on Russian energy by 2027).
Frank Bold set up the Alliance for Corporate Transparency in 2018 to provide evidence to further develop and strengthen the rules for companies’ transparency on their sustainability risks, impacts and opportunities. Since then, we have contributed to the debate by publishing in-depth studies (2020 research report; 2019 research report), policy recommendations, expert articles and conversations with leading business and responsible investors. Frank Bold has taken part in the multi-stakeholder Project Task Force that has prepared the exposure drafts for EU Sustainability Reporting Standards (which are now open for public consultation) and is part of the new Sustainability Reporting Pillar set up in EFRAG.
For any questions, please do not hesitate to contact Susanna Arus, Communications and EU Public Affairs at Frank Bold.
More details can be found in the European Parliament’s website (press conference planned for 22 June at 16h CET) and Council’s press release. Further analysis will be published in the Alliance for Corporate Transparency website and Twitter account.