Finalisation of European ESG reporting rules: CSRD adopted and standards published

The European Parliament has adopted the Corporate Sustainability Reporting Directive (CSRD), which clarifies transparency obligations for large companies operating in the EU on their sustainability impacts, risks, and opportunities. Pursuant to the CSRD, companies across all sectors will report against the European Sustainability Reporting Standards, which were developed by the European Financial Reporting Advisory Group (EFRAG), submitted to the European Commission and published on 22 November

The new rules and EU standards will tackle major problems on the quality, consistency and comparability of sustainability information disclosed by companies, as well as root out widespread greenwashing practices.

Once the legislation is published in the Official Journal of the EU, Member States have a maximum of 18 months to implement CSRD into national law. 

The swift CSRD implementation is key for a successful transformation of the EU's economy. To direct finance flows toward sustainability, private investors, banks and public institutions need consistent and reliable ESG data from companies. 

Read our Brussels office's detailed analysis of the next steps needed: 

https://bit.ly/3EfduCh 

A company will report ESG information under the new standards if:

1. it is traded on a stock exchange (excluding micro companies)

2. it meets at least 2 of the 3 following criteria:

• it has more than 250 employees

• it has a net turnover of at least EUR 40 million

• it has assets on its balance sheet exceeding EUR 20 million

When do reporting obligations come into force?

The Directive is expected to enter into force in 2024, but some companies will be given extra time. The year 2024 is fully binding only for the largest EU companies, which have been required to report sustainability information under the previous NFRD legislation.

EFRAG approved EU sustainability reporting standards

All companies under the CSRD scope will report sustainability data according to European Sustainability Reporting Standards. They will direct businesses on key ESG data and reduce companies’ administrative burden. Recently, the Board of the European Financial Reporting Advisory Group (EFRAG) approved cross-cutting reporting standards and submitted them to the European Commission.

Among other things, the standards require companies to report on their carbon footprint, analysis of climate transition risks, and the significant impacts on people and the environment in their supply chains.

The standards cover strategic cross-cutting ESG information and 10 thematic areas including climate, pollution, water resources, biodiversity, circular economy, own workforce, workers in the value chain, communities & consumers, and business conduct. They also reflect a number of international initiatives, including TCFD, GRI, emerging international standards under IFRS, plus UN and OECD standards for sustainability due diligence. 

The European Commission is expected to adopt the standards in the first half of next year, while EFRAG is also starting work on follow-up standards for climate-risk sectors (energy, transport, agriculture, etc.) being the first in line. The adoption of sectoral standards by the European Commission is expected in 2024. Filip Gregor, Head of the Responsible Companies Section at Frank Bold, participates in the standards’ development as a civil society representative in the EFRAG's Sustainability Reporting Board.

EU sustainability reporting standards - links below

Cross-cutting standards

• General requirements
• General disclosures

Environment

• Climate change 
• Pollution 
• Water and marine resources
• Biodiversity and ecosystems
• Resource use and circular economy

Social

• Own workforce 
• Workers in the value chain
• Affected communities
• Consumers and end-users

Governance

• Business conduct