What is the EU law for sustainability reporting?

The EU has taken significant steps to ensure transparency in corporate sustainability reporting. EU rules mandate that large companies and those listed must regularly publish reports detailing the social and environmental risks they encounter. These reports also highlight the impact of their activities on both people and the environment. This article provides a comprehensive overview of the EU's efforts to ensure transparency in corporate sustainability reporting, emphasizing the importance of understanding the social and environmental impact of business activities.

EU's Role and Purpose

EU law necessitates that all large companies and all listed companies (excluding listed micro-enterprises) disclose information about the risks and opportunities they perceive from social and environmental issues. This also includes the impact of their activities on society and the environment. Such disclosures aid various stakeholders, including investors, civil society organizations, and consumers, in evaluating a company's sustainability performance, aligning with the European green deal.

Corporate Sustainability Reporting Directive (CSRD)

Introduced on 5 January 2023, the CSRD modernizes and amplifies the regulations regarding the social and environmental information that companies must report. This directive expands the scope to include a broader set of large companies and listed SMEs. The primary objective is to provide investors and other stakeholders with the necessary information to gauge the impact of companies on society and the environment. Additionally, it aims to help investors assess financial risks and opportunities stemming from climate change and other sustainability concerns. The first application of these new rules will be in the 2024 financial year, with reports being published in 2025.

European Sustainability Reporting Standards (ESRS)

Companies under the CSRD will have to report according to the ESRS. These standards, developed by the EFRAG (previously known as the European Financial Reporting Advisory Group), will be tailored to EU policies. They will also contribute to international standardization initiatives.

Transition from Non-Financial Reporting Directive (NFRD)

The rules established by the NFRD will remain in effect until companies transition to the CSRD's new rules. Under the NFRD, large companies are required to publish information related to environmental matters, social matters, treatment of employees, respect for human rights, anti-corruption, bribery, and diversity on company boards.

The Corporate Sustainability Reporting Directive (CSRD) is a legislative instrument of the European Union that empowers the Commission to adopt specific delegated and implementing acts. These acts are designed to clarify how competent authorities and market participants should comply with the obligations outlined in the directive. On July 31, 2023, the Commission adopted a Delegated Regulation supplementing Directive 2013/34/EU regarding sustainability reporting standards. This regulation and its annexes are set to enhance the existing directive by providing additional standards for sustainability reporting. However, they will not be in force until published in the Official Journal.

In conclusion, the EU's efforts to ensure transparency in corporate sustainability reporting are significant. The Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) play a crucial role in providing investors and stakeholders with the necessary information to assess the social and environmental impact of companies. As companies transition from the Non-Financial Reporting Directive (NFRD) to the CSRD, it is essential for organizations to understand and comply with the new rules to meet the requirements of EU legislation.