The Corporate Sustainability Reporting Directive (CSRD) was proposed by the European Commission in April 2021 to address significant shortcomings in the reporting framework established in 2014 by the Non-Financial Reporting Directive (NFRD). The CSRD aims to improve and ensure stakeholder access to high-quality, reliable and comparable sustainability information from a broad range of organisations.
The CSRD’s overhaul of the EU’s corporate sustainability reporting framework is now well underway following the recent achievement of a number of major milestones.
Adoption of the CSRD
The CSRD was adopted by the European Parliament on 10 November and by the Council of the European Union on 28 November. Those moves bring the European legislative process to an end. The CSRD will shortly be signed and published in the Official Journal of the European Union and will enter into force 20 days thereafter. Member states will have a period of 18 months within which to transpose the CSRD into national law.
A summary of the organisations within the scope of the CSRD are contained in our previous article on the Corporate Sustainability Reporting Directive.
Reporting obligations under the CSRD will be phased in over a number of years, commencing in 2024 for large public interest entities which are already subject to the NFRD.
Delivery of draft reporting standards
The European Financial Reporting Advisory Group (EFRAG) has been mandated by the European Commission to develop sustainability reporting standards which will specify, in prescriptive detail, the information required to be reported under the CSRD.
In another recent significant step forward, EFRAG, following completion of a public consultation process, delivered its first set of draft standards, known as the European Sustainability Reporting Standards (ESRS), to the European Commission on 23 November.
The draft ESRS include two general “cross-cutting” standards and ten topic-specific standards which are grouped under environment, social and governance headings as follows:
E1: Climate change
E3: Water and marine resources
E4: Biodiversity and ecosystems
E5: Resource use and circular economy
S1: Own workforce
S2: Workers in the value chain
S3: Affected communities
S4: Consumers and end-users
G1: Business conduct
The European Commission will now commence a consultation process with member states and EU bodies, with a view to adopting the first set of ESRS by June 2023.
Additional draft ESRS will follow from EFRAG in due course, including (a) a more limited and proportionate set of reporting standards for in-scope SMEs and (b) additional standards which will be specific to certain sectors.
With the CSRD now adopted, attention will turn to individual member states as they take steps to transpose it into national law within the 18-month deadline. At the same time, the draft ESRS will continue to develop and evolve until they are adopted by the European Commission. What is clear, however, is that the final ESRS will be expansive and ambitious and companies within the scope of the CSRD need to begin immediate preparations for their reporting obligations. Likewise, any organisations contemplating voluntary reporting in accordance with the ESRS need to start taking action now.
For more information and expert advice on the implementation of the CSRD’s reporting obligations, contact a member of our Corporate Governance & Compliance team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.