Sustainability and environmental awareness are topics in society and politics that also have an impact on companies and organizations. The urgent need to solve global problems such as climate change, global warming, the depletion of global resources, and a lack of diversity, equity, and inclusion, require fundamental changes in the way companies operate. More and more companies are already investing in good sustainability and ESG reporting and aim to reduce emissions and improve people and social factors.
The importance of the comparability of sustainability reports
Sustainability, ESG, and DEI reporting are complex and confusing because of a plethora of global “standards”, rankings, ratings, and benchmarks. Companies and stakeholders alike, find it difficult to create and use reports created based on the existing standards and regulations because although referred to as standards, most reporting based on such requirements is still not comparable by humans or computers.
What is missing is well-defined standards that enforce quantified data for each sustainability metric. The call for a simplified uniform standard for sustainability and ESG reporting became increasingly important and urgent.
Investors, legislators, stakeholders, and organizations agreed that more transparency and comparability of environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) reporting was needed. This could be achieved through the creation of better voluntary standards such as the WEF/Big-4 Measuring Stakeholder Capitalism framework and through better defined and enforced regulatory requirements.
At the EU level, the European Financial Reporting Advisory Group (EFRAG) developed an applicable guideline in cooperation with the Global Reporting Initiative (GRI). Based on the Non-Financial Reporting Directive (NFRD), the Corporate Sustainability Reporting Directive (CSRD) will be ratified by the European Union Parliament on November 28.
The EU Directive on Sustainability Reporting
The Corporate Sustainability Reporting Directive (CSRD), adopted by a large majority on 10 November 2022, places greater public responsibility on companies.
Large companies are obliged to regularly disclose information on their social and environmental impacts. This also has the effect of putting an end to greenwashing, strengthening the social market economy in the EU, and laying a foundation for global standards for sustainability reporting.
The scope:
The new EU sustainability reporting requirements apply to all large companies, whether listed or not. Non-EU companies with significant operations in the EU (i.e. with a turnover of more than €150 million) must also comply with the requirements. Listed SMEs are also affected by the regulation but have a little more time to adapt to the new rules.
The step-by-step approach:
The rules will start applying between 2024 and 2028.
→ Sustainable economy: Parliament adopts new reporting rules for multinationals
- From 1 January 2024 for large public-interest companies (with over 500 employees) already subject to the non-financial reporting directive, with reports due in 2025;
- From 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets), with reports due in 2026;
- From 1 January 2026 for listed SMEs and other undertakings, with reports due in 2027. SMEs can opt-out until 2028.
Blog article was written by: Sylke Bauerschmidt and Peter Storm
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