The European Parliament’s Committee on Legal Affairs (JURI) has elucidated its stance regarding the Corporate Sustainability Reporting Directive (CSRD) with 22 votes in favour and one against. This means that large companies will shortly be obliged to publicly disclose detailed findings on the way they operate and manage social and environmental risks. If EU governments concur, the bill will make businesses more accountable for their effect on people and the planet, while giving comparable, reliable and easily accessible information on sustainability to investors and the public alike.

EU sustainability standards

Reporting rules for companies have been clarified — introducing more exhaustive reporting requirements into the updated Non-Financial Reporting Directive, in line with the European Green Deal. Thus, disclosed information should be audited, more easily accessible, reliable and comparable, MEPs have agreed.

The European Financial Reporting Advisory Group (EFRAG) is commissioned to develop the mandatory EU sustainability-reporting standards. Topics include environmental matters, gender equality and diversity, and governance, including anti-corruption and bribery, which the Commission would then adopt by delegated acts. MEPs are demanding funding should be increased and annual discussions held with Parliament to achieve this.

Scope, high-risk sectors

MEPs agreed all large companies (as defined in the Accounting directive), should be covered according to the new CSRD rules whether listed or not. They also voted to include non-EU companies operating in the internal market. Currently, MEPs believe that reporting standards on a voluntary basis should remain reserved for small and medium-sized undertakings. The text also urges the Commission to establish additional reporting criteria for companies in high-risk sectors (textile, agriculture, mining, minerals). Such companies will have an additional year to adapt to the new rules, with the first public reports due in 2025.

The rapporteur Pascal Durand (Renew, FR) said: “Long awaited by business and investment leaders, the Corporate Sustainability Reporting Directive (CSRD) is a further step in the evolution of our business model and investment practices. The balanced compromise supported by a large majority of political groups should ensure the EU is well equipped to maintain our legal, competitive, environmental and social standards and values, and to negotiate at international level so that they do not disappear or get absorbed into global systems of lower standards”.

Next steps

The Council approved its general approach on 24 February 2022. Talks with member states can commence once the Parliament as a whole approves its negotiating position.

Background

Findings show that data companies currently obliged to report on is largely insufficient (for investors/ other stakeholders). Information can be challenging to compare company to company. Investors call for greater awareness about the impact that companies have on people and the environment to meet their own disclosure requirements and be better informed on sustainability risks. Such information allows money to be channelled towards environmentally-friendly activities. Problems in the quality of reporting lead to a public accountability gap.

Source: Sustainability reports