Corporate Sustainability Reporting Directive (CSRD) 2022/2464

Directive of the European Parliament and of the Council (EU) 2022/2464 (CSRD) Corporate Sustainability Reporting Directive of December 14, 2022, amending Regulation (EU) No. 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU regarding corporate sustainability reporting (Text with EEA relevance).

This Directive shall enter into force on the twentieth day following its publication in the Official Journal of the European Union. Article 4 of this Directive shall apply from 1 January 2024 to accounting years beginning on or after 1 January 2024.

This directive deals with the issue of reporting information on sustainability by companies. The main objective of the directive is to improve the quality, comparability and availability of information on sustainability aspects that companies publish.

Why is sustainability reporting important?

• Increasing financial importance: Sustainability information is increasingly important from a financial point of view.
• Better decision making and risk management: Quality sustainability reporting enables companies to better recognize and understand sustainability-related risks and opportunities and make more informed decisions.
• Increasing investor confidence and access to financial capital: Investors are increasingly looking for sustainability information when making investment decisions. Companies with good sustainability transparency may have better access to financial capital.
• Improving communication with stakeholders: Sustainability reporting facilitates dialogue and communication between businesses and their stakeholders such as employees, suppliers, customers and local communities.
• Reduction of administrative burden: Harmonized reporting standards on sustainability information reduce the number of ad hoc requests for information and simplify the reporting process for businesses.

Who does the directive apply to?

The Directive extends the scope of mandatory reporting of sustainability information to a wider range of businesses:

• All major businesses: Regardless of whether their securities are traded on a regulated market.
• All businesses, with the exception of micro-enterprises, whose securities are traded on a regulated market in the EU: Including issuers from third countries.
• Parent companies of large groups: At the group level.
• Credit institutions and insurance companies: If they meet certain size criteria.
• Enterprises from third countries: Whose securities are traded on a regulated market in the EU or which carry out significant activity in the territory of the EU.

What do businesses have to report?

The Directive defines "sustainability aspects" as environmental, social, human rights and administrative factors.

Businesses must report information on:

• Double significance: The Directive emphasizes the importance of reporting information in terms of risk for the business (how aspects of sustainability affect the company) also in terms of the influence of the company (how the business affects aspects of sustainability).
• Due diligence process: Information on how businesses identify, assess and manage their sustainability impacts throughout their value chain.
• Environmental factors: For example, greenhouse gas emissions, water and energy consumption, biodiversity and pollution.
• Social factors: For example, working conditions, human rights, diversity and inclusion.
• The right factors: For example, governance and corporate culture, anti-corruption and payment practices.

Standards for reporting sustainability information

The Directive obliges the Commission to adopt delegated acts laying down sustainability reporting standards.

These standards:

• In more detail, they determine the information that businesses must publish.
• They ensure the quality of reported information: Information should be comprehensible, relevant, verifiable, comparable and truthfully presented.
• They take into account the work of global standard-setting initiatives: To minimize the administrative burden on businesses.
• They set industry-specific requirements: Given the different risks and impacts in individual industries.
• They take into account the needs of small and medium-sized enterprises: By providing adequate standards for these businesses.

Sustainability reporting assurance

The Directive introduces an obligation assurances in the field of reporting information on sustainability, which is supposed to ensure the trustworthiness of published information.

• Independent assurance service providers: They must verify that the reporting of sustainability information meets the requirements of the directive and the reporting standards of sustainability information.
• Assurance opinion: Must be published together with the sustainability report.

Sanctions

The Directive stipulates that Member States must introduce effective, proportionate and dissuasive sanctions for non-compliance with the requirements of the directive.

Conclusion

The Sustainability Reporting Directive is a significant step towards more transparent and responsible business in the EU.

It is important to note that the directive is quite complex and detailed. This text provides only basic information about its main points. For more detailed information, it is necessary to consult the entire text of the directive. (Co2AI)

See also CSRD Directive in a nutshell