Corporate Sustainability Reporting Directive
The EU Corporate Sustainability Reporting Directive (CSRD), heralds a new era in sustainability reporting. This new directive, proposed by the European Commission on 21 April 2021, aims to increase transparency on corporate performance in terms of sustainability. A new set of rules will, over time, be introduced, bringing sustainability reporting on a par with financial reporting. All large and listed companies are expected to fall under the scope of these new EU sustainability reporting requirements.
The timeline for implementing these new requirements is tight, to say the least. The more detailed sustainability reporting standards are expected by mid 2022, and by the end of the same year all member states must have incorporated the CSRD requirements into national law.
The reporting obligation is expected to apply to reports published from 1 January 2024. The changes therefore would already affect the 2023 reporting period.
The proposed Corporate Sustainability Reporting Directive extends the scope of reporting companies to include all large and all listed companies. The EU sustainability reporting standards will be developed by the European Financial Reporting Advisory Group (EFRAG). Sustainability reporting must be assured by the statutory auditor based on a limited assurance engagement.
All large companies, and all companies listed on EU regulated markets (with the exception of micro-enterprises) would be required to apply EU sustainability reporting standards. Large banks and insurance companies continue to be subject to the reporting obligation, regardless of their capital market orientation.
The definition of a ‘large company’ is when, on its balance sheet date, a company has
more than 250 employees on average during the financial year
a balance sheet total in excess of 20 million euros
a net turnover in excess of 40 million euros.
It is estimated that the number of entities affected by these new regulations will increase five fold. This means that the reporting obligation would also apply to family-run and private equity owned enterprises.
The content of the report has been comprehensively expanded and new, binding EU sustainability reporting standards will be adopted. The purpose is to create more uniformity in application, to replace the current patchwork of standards. In addition, reporting companies must disclose their green financial indicators in accordance with the EU Taxonomy Regulation, to show which of their activities are green by EU standards. These were formalised by the delegated act which was published on the same day. Qualitative and non-integrated sustainability reporting will no longer be considered compliant with the regulation.
The CSRD imposes an audit requirement for the sustainability part of reports. In order to increase the reliability of sustainability reporting, companies within scope will be required to seek limited assurance over their reported sustainability information - which may move towards a reasonable assurance requirement at a later stage.
The management report must now include sustainability reporting. It can no longer be issued as a separate report. This presents several challenges: companies must bring sustainability reporting forward to the time they publish their management report, and they must report more sustainability information than ever before. Furthermore, companies must prepare their reporting in a single electronic reporting format, information which has to be digitally tagged.
Administrative, management and supervisory bodies will be required to actively and demonstrably bear collective responsibility for sustainability reporting. The balance sheet oath, which until now only referred to financial reporting, is expected to be extended to the reporting of sustainability information. This is the first time that management has been required to show to the outside world - explicitly and in writing - that it bears this responsibility.
With the ambitious timeframe set out by the European Commission for the implementation of this directive, time is of the essence. Even for companies that have already embraced non-financial reporting, the implications are far reaching. If you’d like to discuss how PwC can help you with sustainability reporting, don’t hesitate to get in touch.
Partner, PwC Belgium
Tel: +32 477 50 00 38