EU law requires certain large companies to disclose information on the way they operate and manage social and environmental challenges. This covers approximately 11 700 large companies and groups across the EU including listed companies, banks, insurance companies and other companies designated by national authorities as public interest entities.

Corporate Sustainability Reporting – CSRD

The purpose of this measure is to helps investors, civil society organizations, consumers, policy makers and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business.

On 21 April 2021, the Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements of the NFRD. The draft standards would be developed by the European Financial Reporting Advisory Group (EFRAG).

The proposal suggested to :

  • extends the scope to all large companies and all companies listed on regulated markets (except listed micro-enterprises)
  • requires the audit (assurance) of reported information
  • introduces more detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards
  • requires companies to digitally ‘tag’ the reported information, so it is machine readable and feeds into the European single access point envisaged in the capital markets union action plan

Corporate Sustainability Reporting – CSRD

Reports on development of EU sustainability reporting standards

EFRAG released the 2 reports which recognize the importance of coordinating the development of EU sustainability reporting standards with existing and emerging global initiatives.

The first report proposes a roadmap for the development of a comprehensive set of EU sustainability reporting standards. It was prepared by a multistakeholder task force established by the European Financial Reporting Advisory Group (EFRAG).

The second report proposes reforms to EFRAG’s governance structure to ensure that future EU sustainability reporting standards are developed using an inclusive and rigorous process. It sets out, for example, how national and European authorities will be involved, while ensuring that the process also draws upon the expertise of the private sector and civil society.

EU sustainability standards are necessary to meet the political ambition and urgent timetable of the European Green Deal.

They are also necessary to ensure consistency of reporting rules at the heart of the EU’s sustainable finance agenda , especially the existing Sustainable Finance Disclosure Regulationthe Non-Financial Reporting Directive (NFRD), the Taxonomy Regulation, as well as with the requirements of forthcoming legislation on sustainable corporate governance and due diligence.

What to expect from the new CSRD requirements?

In addition to current NFRD requirements, the CSDR will impose climate standards including, Business Strategy, Risks, Governance, Policies, Targets and finally Actions.

The European Companies will have to disclose Scope 1-2-3 GHG emissions in absolute value over the past three years in relation to a base year to allow investors and other stakeholders to undertake evolution analysis and monitoring the performance.

Scope 3 categories will be summarized to five overarching categories: 1) upstream purchasing, 2) downstream sold products, 3) goods transportation, 4) business travels and 5) financial investments. These general categories will have to include at least 80% of total Scope 3 emissions.

Based on the results of the Scope 1-2-3 carbon assessment, climate targets should be aimed at being aligned the 1.5°C climate target Paris Agreements target and the EU Climate Law (-55% in 2030 and carbon neutrality in 2050). Therefore, the trajectory should be disclosed in a graph with reference to a 1.5°C scenario. The target years should be 2030 and 2050 with milestones every 5 years from 2025 to 2050.

The reporting should be reported into the management report in electronic format (XHMTL) after being submitted to 3rd party mandatory assurance. According to its NACE activity sector code, each company will be required to assess specific sustainability matters

Therefore, the CSRD will introduce the obligation to carry out a carbon footprint assessment coupled with a monitoring of their environmental, social and governance impacts which will constitute the full ESG Report. This report will have to follow specific guidelines regarding the type of information disclosed, their complexity and the selected format.

Last month, Eurosif and the UN-PRI sent a letter to the EU institutions (the European Commission, the European Parliament, and the Council) regarding the need for CSRD to mandate robust disclosures around company transition plans and net-zero commitments, including disclosure of the scenarios used for these plans and the key assumptions underpinning them.

The first set of standards would be adopted by October 2022.

Corporate Sustainability Reporting – CSRD

Source: EFRAG, EU Commission, CCI