EU to Require Auditing of Sustainability Reporting, Disclosure by Large non-European Companies
Marking a major step towards the implementation of a new sustainability reporting system in Europe, the EU Council and European Parliament announced that they have reached an agreement on the rules of the Corporate Sustainability Reporting Directive (CSRD). The new agreement will require companies to have their reported sustainability information independently audited, and will also apply to some large non-EU companies.
The CSRD is aimed as a major update to the 2014 Non-Financial Reporting Directive (NFRD), the current EU sustainability reporting framework. The new rules will significantly expand the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000 currently, introduce more detailed reporting requirements, and require audited assurance of the information reported.
The rules will require disclosure under a common framework of European Sustainability Reporting Standards (ESRS), currently under development by the European Financial Reporting Advisory Group (EFRAG). Under the new system, companies will be required to report on issues ranging from environmental rights and social rights to human rights and governance factors.
Bruno le Maire, Minister of Economy and Finance of France, said:
“This agreement is excellent news for all European consumers. They will now be better informed about the impact of business on human rights and the environment. This means more transparency for citizens, consumers and investors. It also means more readability and simplicity in the information provided by companies, who must play their full part in society. Greenwashing is over.”
The new agreement will require companies to have the information they provide on their impact on climate or human rights to be independently audited and certified. The agreement also extends the reporting requirements to non-European companies that generate over €150 million in the EU.
The CSRD rules will apply to companies already covered by the NFRD at the beginning of 2024, and for other large companies in the following year. SMEs will also be required to provide sustainability disclosure beginning in 2026, while some SMEs will be able to opt out until 2028.
The EU Parliament’s lead negotiator Pascal Durand said:
“Today, information on a company’s impact on the environment, human rights and work ethics is patchy, unreliable and easily abused. Some companies do not report. Others report on what they want. Investors, consumers and shareholders are at loss. From now on, having a clean human rights record will be just as important as having a clean balance sheet.”