On 5 January 2023, the long-awaited EU CSRD came into force, expanding reporting obligations on the impact which companies have on people and the environment.
European Green Deal
On 16 December 2022, after more than one and a half years of public consultation and inter-institutional arrangements, the text of the Corporate Sustainability Reporting Directive (CSRD) was published in the Official Journal of the European Union. The regulations introduced therein will replace a number of existing solutions relating to non-financial reporting contained, inter alia, in the Non-Financial Reporting Directive (NFRD). The CSRD is part of an action plan under the European Green Deal.
Who is affected by the new ESG Directive?
The new ESG reporting obligations will be imposed in the first instance on the largest entities already required to file non-financial reports under the NFRD and the Accounting Act implementing it.
Reporting obligations will subsequently extend to all other large undertakings (including parent companies of large groups) that meet at least two of the following conditions:
- More than 250 employees
- EUR 40 million in turnover, or
- EUR 20 million in total assets.
Lastly, small and medium-sized listed companies will be added to the list of entities required to submit ESG reports.
Obligations will also cover certain non-EU (third-country) undertakings with:
- A turnover of over EUR 150 million in the EU, and
- An EU branch.
Corporate Sustainability Reporting Directive – what else is going to change?
One of the most significant changes is the introduction of a uniform ESG reporting standard, both from the perspective of reporting entities and beneficiaries, i.e. investors and consumers.
Until now, under the NFRD, the choice of the reporting standard was left to reporting entities, which meant that it was often not possible to compare information provided by different entities.
The omission of certain data and the lack of market confidence in such data meant that the existing reports were of poor quality.
This is set to change under the CSRD.
By 30 June 2023, the European Commission is to present delegated acts to the directive, under which uniform European Sustainability Reporting Standards (ESRS) will be introduced, already having been drafted and presented last November by the European Financial Reporting Advisory Group (EFRAG) Sustainability Reporting Board. Reporting will have to be made in a uniform digital format.
New ESG reporting obligations – yes, but not straight away
Although the CSRD entered into force on 5 January 2023, this does not mean that obliged entities will immediately need to start complying with the obligations contained therein this year.
The legislation provides relatively ample time to prepare for the changes, as the first group of obliged entities will only have to file their first CSRD-compliant sustainability reports in 2024 (followed by large undertakings in 2025 and listed SMEs in 2026).
However, this does not mean that ESG issues can be completely disregarded until then.
It should be borne in mind that, in order to correctly comply with reporting obligations, additional (perhaps currently uncollected) business information will need to be collected and adequately analysed.
Moreover, some of the required information will relate not only to the reporting entity itself, but to its group entities and value chain. Adding to this the fact that the reports will be available to business partners, customers and investors, it is worthwhile starting gathering data as early as possible and taking appropriate steps to demonstrate a real concern for employees, communities and the environment within your business.
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See also:
The roots of the current ESG revolution
