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The Corporate Sustainability Reporting Directive - CSRD Latest Timeline
Who will be covered by the directive?
EU rules on non-financial information apply to large public-interest companies with more than 500 employees and to all large companies and all companies listed on regulated markets. These companies are also responsible for assessing the information at the level of their subsidiaries.
The new EU sustainability reporting requirements will apply to all large companies (with over 250 employees and a 40 million euro turnover), whether listed or not. Companies will have to report on their impact on the environment, human rights, social standards, and work ethics, based on common standards.
The rules also apply to SMEs, taking into account their specific characteristics. An opt-out will be possible for SMEs during a transitional period, meaning that they will be exempted from the application of the directive until 2028.
For non-European companies, the requirement to provide a sustainability report applies to all companies generating a net turnover of EUR 150 million in the EU and which have at least one subsidiary or branch in the EU. These companies must provide a report on their ESG impacts, namely on environmental, social, and governance impacts, as defined in this directive.
Assurance & Audit
Reporting must be certified by an accredited independent auditor or certifier. The reporting of non-European companies must also be certified, either by a European auditor or by one established in a third country.
The assurance standards for sustainability reporting under the updated CSRD rules Article 26a, state that the Member States may apply national assurance standards, procedures, or requirements as long as the Commission has not adopted an assurance standard covering the same subject matter. And that the Member States shall communicate the assurance procedures or requirements to the Commission at least three months before their entry into force. The assurance standards for sustainability reporting are required to set out the procedures that the auditor shall perform in order to draw its conclusions on the assurance of sustainability reporting, including engagement planning, risk consideration and response to risks, and the type of conclusions to be included in the audit report. And The EU Commission will adopt such assurance standards for reasonable assurance within six years after the entry into force of the CSRD.
The CSRD will mandate the adoption of EU Sustainability Reporting Standards, which are now being developed by the European Financial Reporting Advisory Group (EFRAG) at the technical level, and will eventually be enshrined in the EU law through a delegated act. For more detailed information regarding the proposed EU Sustainability Reporting Standards (ESES) by the European Financial Reporting Advisory Group (EFRAG), please read our previous analysis here.
The provisional agreement reached today is subject to approval by the Council and the European Parliament. From the Council’s side, the provisional political agreement is subject to approval by the Permanent Representatives Committee (Coreper), before going through the formal steps of the adoption procedure. The directive will enter into force 20 days after its publication in the Official Journal of the European Union.
Implications for Investors
By requiring companies to report on their alignment to the EU Taxonomy, as well as on their negative impacts on sustainability issues (Principal Adverse Impacts) – the CSRD will render the data necessary to fulfill entity and product-level disclosures under the Sustainable Finance Disclosure Regulation (SFDR) available to financial market participants, said by EUROSIF.
Why the CSRD is important for investors:
It will ensure financial market participants have reliable and comparable ESG data to make well-informed investment decisions.
By requiring companies to report on their alignment to the EU Taxonomy and on Principal Adverse Impacts (PAIIs), the CSRD will render the data necessary to fulfill disclosures under SFDR available to financial market participants.
The CSRD will mandate the adoption of EU Sustainability Reporting Standards, which are now being developed by the EFRAG.