SHARE
Thoughts
Further signs this week that the EU is seeking to strengthen environmental and social reporting requirements; Tuesday saw MEPs and EU national governments strike a provisional deal which would require major corporates to report on how their businesses impact on both people and the environment.
The Corporate Sustainability Reporting Directive (CSRD) will require that major businesses – defined as organisations with over 250 employees and a €40 million turnover – report their social and environmental impact against common standards. Tuesday’s move is an amendment to 2014’s Non-Financial Reporting Directive (NFRD) which set out its aim to encourage: “investors, civil society organisations, consumers, policymakers and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business”. The CSRD, if it can find agreement in the European Council and Parliament, will bolster the need for reporting on key social and environmental activities. These include requirements for:
- The audit (assurance) of reported information
- Detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards
- Digital ‘tagging’ the reported information, so it is machine readable and feeds into the European single access point envisaged in the capital markets union action plan.
In his overview of the drivers behind the CSRD, Pascal Durand, who led negotiations was clear:
“The European extra-financial audit market will be standardised, much more rigorous and transparent. Parliament succeeded in securing an opening of the audit market by member states in order to make room for new certified players to become major players and not just leave it in the hands of the financial auditors, notably the big four”.
The agreement, which if enacted will apply equally to public and private companies meeting the Accounting Directive size threshold, will be required to report on environmental, human rights, social standards and work ethics issues. Likewise, major non-EU businesses will be subject to the same provisions. In a nod to the difficulties comprehensive reporting can represent to smaller businesses, the agreement lays out a provision to less rigorous reporting for qualifying SME businesses and subcontractors.
The drive towards common standards is a welcome one, although details on those standards is not yet available. However, this year’s launch of the Social Taxonomy consultation gives an early indicator of the EU’s planned direction.
If you would like to discuss the above with our ESG experts, you can get in touch with them today.