On 21 April 2021, the EU Commission announced its proposal to extend existing sustainability reporting in a new Corporate Sustainability Reporting Directive (CSRD). The proposal, which revises the Non-Financial Reporting Directive (the “NFRD“), will extend the reach of sustainability reporting to more companies and will cover more sustainability topics.
This is part of a wider, concerted effort by the EU to legislate for greater E, S and G reporting and accountability standards, like the EU’s proposed mandatory human rights and environmental due diligence law. It is also part of a larger global trend: for example, New Zealand recently introduced a new Climate Disclosure Law (see our Blog Post on this here). Companies are increasingly embracing voluntary sustainability reporting but there are increased demands for mandatory reporting – the Global Reporting Initiative (GRI) for instance called for mandatory reporting in December last year. However companies’ standards of voluntary reporting are of variable quality and often do not address the impacts of companies’ business activities on people and the environment.
Key aspects of the proposed Sustainability Reporting Directive:
- More companies would be asked to report on sustainability, up from 11,000 previously to nearly 50,000.
- The “double materiality perspective” is further reinforced – that is companies have to report on the impact of their business activities on people and the planet across the full value chain, as well as the sustainability risks for the business itself, and to disclose the process for determining their material issues.
- Measurements of sustainability will be more consistent, reliable, and therefore comparable, for investors and other stakeholders.
- Timing is subject to change, but it is expected these measures would take effect in 2024, i.e. reporting on the financial year ending 2023.