Week of 26 April 2021
What just happened at the EU level with regard to sustainability reporting?
Our key takeaway: Coming up at the EU – more companies to report on sustainability, using more uniform definitions – that in turn will have ripple effects across global sustainability reporting.
On 21 April 2021, the European Commission announced its plans for a Sustainability Reporting directive, which would reform the EU Non-Financial Reporting Directive (NFRD). This builds on technical recommendations and a roadmap proposed by the European Financial Reporting Advisory Group (EFRAG):
- A larger number of companies would be requested to report on sustainability – from 11,000 to 41,000. The NFRD applied to public interest entities, i.e., listed companies, banks, and insurance companies, with over 500 employees, which is approx. 11,000 companies. The proposed directive would apply to approx. 41,000 companies comprised of large companies, both publicly and privately listed and listed SMEs. (Large companies have 250 or more employees and an annual turnover of EUR 50 million or more and/or an annual balance sheet of EUR 43 million or more).
- The sustainability content will be clearer, and sustainability information would be subject to assurance. The NFRD had previously introduced the ‘double materiality perspective’, meaning that companies have to report about (1) how sustainability issues affect their business and (2) their own impact on people and the environment. A group of CSOs comment that this principle is “clarified and properly enshrined in the draft proposal.” Further, new European sustainability reporting standards would be developed. These would be mandatory, and would be generic and sector specific. Companies would also be asked to report on the alignment of their business strategy and model with a 1.5°C goal. The proposal would introduce a general EU-wide audit (assurance) requirement for reported information.
- Timing depends on the legislative negotiations, but first company reports should be in 2024 (covering financial year 2023). This proposal forms the basis for legislative discussions amongst the European Parliament and the European Council (comprising the EU Member States) – with the idea being that this directive would enter into force for reports covering the financial year 2023. In parallel, the European Financial Reporting Advisory Group (EFRAG) will be developing a first set of draft sustainability reporting standards, to be ready by mid-2022.
For more, see European Commission, Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting (21 April 2021)
European Commission, Questions and Answers: Corporate Sustainability Reporting Directive proposal (21 April 2021)
Benjamin Fox, MEP: EU corporate reporting blueprint should be basis of international rules (Euractiv, 21 April 2021)
Alliance for Corporate Transparency, On the Corporate Sustainability Reporting Directive (NFRD reform) proposal: most promising changes and caveats (21 April 2021)