EU Legislators Adopt Standards for Corporate Sustainability Reporting

The Corporate Sustainability Reporting Directive (CSRD) was accepted by the European Parliament by a vote of 525 to 60, marking a key step toward the implementation of a new sustainability reporting system in Europe (with 28 abstentions).

Beginning in 2024, the vote paves the way for a substantial revamp and extension of corporate sustainability reporting in the EU.

The CSRD is intended to serve as a significant update to the 2014 Non-Financial Reporting Directive (NFRD), the current EU framework for sustainability reporting. The new laws would dramatically increase the number of enterprises obliged to give sustainability disclosures from the present 12,000 to over 50,000, and establish more detailed reporting requirements on environmental consequences, human rights and social standards, and sustainability-related risk.

In accordance with a recent agreement between the EU Parliament and EU Council, the guidelines will also compel significant non-EU corporations to have their reported sustainability statistics independently audited.

The CSRD will mandate disclosure in accordance with a unified framework of European Sustainability Reporting Standards (ESRS), which is being developed by the European Financial Reporting Advisory Group (EFRAG). Companies will be expected to report on problems ranging from environmental sustainability and social rights to human rights and governance aspects under the new system.

With the EU Parliament's approval of the CSRD, the proposal will be forwarded to the Council, which is anticipated to approve it later this month. Beginning in 2024, the restrictions will apply to major public-interest corporations with over 500 employees, followed by corporations with over 250 employees or €40 million in revenue in 2025, and listed SMEs in 2026.