November 29, 2022
Council gives final green light to corporate sustainability reporting directive

The Council gave its final approval to the corporate sustainability reporting directive (CSRD).

Companies will soon be required to publish detailed information on sustainability matters, thus, increasing a company’s accountability, prevent differing sustainability standards, and facilitate the switch to a sustainable economy.

The new rules will make more businesses accountable for their impact on society and will guide them towards an economy that benefits people and the environment. Data about the environmental and societal footprint would be publicly available to anyone interested in this footprint. At the same time, the new extended requirements are tailored to various company sizes and provides them with sufficient transition period to get ready for the new requirements. Jozef Síkela, Minister for Industry and Trade

Companies will have to report on how their business model impacts their sustainability, and on the extent to which external sustainability factors influence their activities leading to investors and other stakeholders having a better understanding to take more informed decisions on sustainability issues. As a result, the CSRD fortifies current laws on non-financial reporting introduced in the Accounting Directive by the 2014 non-financial reporting directive (NFRD), which are no longer suit the EU's transition to a sustainable economy.

New reporting rules for companies

The new sustainability reporting rules will apply to all large companies as well as companies listed on regulated markets except those listed micro undertakings, not to mention the obligation of assessing information applicable to their subsidiaries. An opt-out will be possible for listed SMEs during a transitional period, exempting them from the application of the directive until 2028.

For non-European companies there is also an obligation to supply a sustainability report on their environmental, social and governance (ESG) impacts, as defined in this directive. Namely, companies generating a net turnover of EUR 150 million in the EU and which have at least one subsidiary or branch in the EU exceeding certain thresholds.

Draft European standards will be developed by the European Financial Reporting Advisory Group (EFRAG) as part of their responsibilities, whereas the European Commission will adopt the final version of the standards as a delegated act, once discussions with EU member states and a number of European bodies have been conducted.

Application date

The application of the regulation will take place in four stages:

  • reporting in 2025 on the financial year 2024 for companies already subject to the NFRD;
  • reporting in 2026 on the financial year 2025 for large companies that are not currently subject to the NFRD;
  • reporting in 2027 on the financial year 2026 for listed SMEs (except micro undertakings), small and non-complex credit institutions and captive insurance undertakings;
  • reporting in 2029 on the financial year 2028 for third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.

Background

On 21 April, 2021, as part of the European Green Deal and the Sustainable Finance Agenda, the European Commission presented the CSRD proposal and will fill the gaps in the current rules on sustainability information.

If private capital is to finance a green and social transition, financial markets need access to environmental, social and governance information that is consistent, pertinent and comparable. Namely, as described in the Green Deal, disclosure of sustainability information could attract additional investment and funding to facilitate the transition to a sustainable economy.

EU member states unanimously agreed on the Council’s position on the CSRD proposal on 24 February, 2022, while, the Council and the European Parliament reached a provisional agreement on the CSRD on 21 June, which was endorsed by EU member states’ representatives 9 days later.

Next steps

The legislative act has been adopted following the Council’s approval of the European Parliament's position, and will be published in the Official Journal of the European Union after being signed by the President of the European Parliament and the President of the Council, and will enter into force 20 days afterwards. Implementing new legislation by member states will need to made 18 months later.

Source: European Council member states