Key EU Sustainability Reporting Regulations Explained

in

By Marie Coupeau

Relevant legislation:

  • Corporate Sustainability Reporting Directive (CSRD) – 2022/2464/EU
  • EU Taxonomy Regulation – 2020/852/EU
  • Sustainable Finance Disclosure Regulation (SFDR) – 2019/2088/EU
  • Non-Financial Reporting Directive (NFRD) – 2014/95/EU

Corporate Sustainability Reporting Directive (CSRD)

Almost 50,000 companies expected to be impacted by CSRD (three quarters of business in the European Economic Area). 

CSRD will apply to:

  • Companies listed on regulated markets in the EU (apart from listed micro-enterprises), and large companies. 
  • Large companies, if meets 2 out of 3 of the following criteria:
    • +250 employees
    • turnover > €40 M 
    • > €20M total assets.
      • Will need to take into account information at subsidiary level.
  • Listed SMEs, but transitional period (SMEs can opt out until 2028). 
  • Non-EU companies with a net turnover of €150 million in the EU, and with at least one subsidiary or branch in the union.

Reports must cover:

  • Environmental matters – including science-based targets, EU Taxonomy and climate risk-related reporting. 
  • Social matters and treatment of employees.
  • Respect for human rights.
  • Anti-corruption and bribery.
  • Diversity on company boards (in terms of age, gender, educational and professional background).

Application of CSRD in 4 stages: 

  • 1 January 2024 – for companies already reporting in line with NFRD (reporting in 2025 on 2024 data).
  • 1 January 2025 – for large companies that are not currently subject to NFRD (reporting in 2026 on 2025 data).
  • 1 January 2026 – for listed SMEs, small and non-complex credit institutions and captive insurance undertakings (reporting in 2027 on 2026 data).
  • 1 January 2028 – reporting in 2029 on the financial year 2028 for third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds

Taxonomy Regulation

The Taxonomy Regulation established 6 objectives for European companies and some third-countries companies active in Europe to follow:

  • Climate change mitigation
  • Climate change adaptation
  • Sustainable use and protection of water and marine resources
  • Transition to a circular economy
  • Pollution prevention and control
  • Protection and restoration of biodiversity and ecosystems

The Taxonomy regulation allows to assess the companies’ performances towards the above objectives through 4 criteria:

The Taxonomy regulation will be implemented in Europe according to the following timeline:

Milestones (infographic Eurosif)

Sustainable Finance Disclosure Regulation (SFRD)

Due Diligence regulation proposal

Who needs to report?

  • EU large Limited Liability companies
    • Group 1: 500+ employees & net EUR 150 million+ turnover worldwide 
    • Group 2: 250+ employees & net EUR 40+ million turnover worldwide, and operating in defined high impact sectors, e.g. textiles, agriculture, extraction of minerals.
      • Rules apply 2 years later 
  • Third countries companies
    • Active in EU 
    • Turnover aligned with group 1 & 2, generated in the EU

SME and micro companies are not concerned

When?

European Parliament needs to approve the proposal.

Once adopted, Member states have 2 years to transpose into national law.

Corporate due diligence duty:

  • Identify, bring to an end, prevent, mitigate and account for:
    • Negative human rights impacts
    • Environmental impacts 
  • Different levels:
    • Cie’s own operations
    • Subsidiaries
    • Value chains 

Enforcement:

  • Administrative supervision:
    • Member state designate an authority to supervise and impose sanctions
    • Commission creates European Network of Supervisory Authorities
  • Civil liability: damages and compensations

Sources:

CSRD

Taxonomy

SFRD

Due Diligence