The proposed Corporate Sustainability Reporting Directive will, amongst others, broaden the category of entities currently subject to reporting under the Non-Financial Reporting Directive to include all listed entities, immaterial of size, while imposing significantly more detailed reporting requirements

The current Non-Financial Reporting Directive ("NFRD")1 focuses exclusively on reporting rules applicable to the so-called "public interest entities", meaning listed entities, banks and insurance companies that are "large"2 and have more than 500 employees. According to the European Commission, only about 11,700 companies currently fall within the NFRD purview. These "public interest entities" are required to publish information related to environmental matters, social matter 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). Companies report from what is referred to as "a double materiality perspective" meaning that companies need to consider both how sustainability issues affect their business as well as their own impact on people and the environment.

As part of a wider EU initiative related to its Action Plan for Financing Sustainable growth adopted in March 2018, the Commission had been for some time eyeing a revision of the NFDR to determine whether there was the need to enlarge its outreach beyond entity size considerations. Such an approach can also be seen in the Sustainable Finance Disclosure Regulation3 (the "SFDR") that entered into force this year and which focused on financial markets participants4 targeting more entities by the industry as opposed to size, although effectively the disclosure obligations in the SFDR will indirectly result in more scrutiny on a wide variety of companies operating in different industries.

On 21 April 2021, as part of an ambitious package of measures to help improve the flow of money towards sustainable activities across the EU, the Commission adopted a proposal for a Corporate Sustainability Reporting Directive (the "CSRD") .

Broadening of scope
The proposed Directive endeavours to, amongst others, amend the reporting requirements contained in the NFRD by extending its scope to all large5 companies (whether listed or not) and all companies listed on regulated markets (including SMEs, but excluding listed micro-enterprises). The previous 500-employee threshold would not remain applicable. It is envisaged that around 49,000 European entities will become subject to providing sustainability information in their annual reports.

More detailed reporting
The CSRD will require entities to report on their business strategy, their sustainability targets and progress towards achieving them, the role of the administrative, management and governance bodies in relation to sustainability factors and the company's most significant negative impacts on sustainability factors.

Audit Assurance and sustainability reporting standards
In addition to introducing more detailed requirements, the proposal would for the first time introduce a general EU-wide audit (assurance) requirement for reported sustainability information, to ensure that information is accurate and reliable. The Commission is proposing to start with a 'limited' assurance requirement, although this may progress to a 'reasonable" assurance requirement. The proposal also endows the Commission with the ability to adopt EU sustainability reporting standards6 on which to base the said assurance. It is envisaged that these reporting standards will delve into Environmental, Social and Governance factors. Reported information would need to be "tagged" so that it is machine-readable in line with the ESEF format.

Concluding remarks

The proposed CSRD needs to be read jointly with other EU initiatives on sustainable finance such as the SFDR and the Taxonomy Regulation7 since it should produce an aligned regime, where complexity and duplicate reporting is reduced. The reporting framework being proposed should also lead to companies reporting the information that investors and other financial market participants subject to the SFDR need. Specifically, that means that the CSRD reporting standards would include indicators that correspond to the indicators contained in the SFDR.

There is still a long way ahead before the final legislative text and the reporting standards are available. If the EU Parliament and Council reach an agreement in the first half of 2022, companies would apply the reporting for the first time to reports published in 2024, covering the financial year 2023. Large companies and listed entities who so far have not been impacted by the NFRD should however make use of this time window to start familiarising themselves with the kind of reporting required by the proposed CSRD and perhaps more importantly foster the right mindset and culture to approach sustainability and ESG aspects.


1. Directive 2014/95/EU

2. Vide definition in Part 1 of the 3rd Schedule of the Companies Act, Cap. 386 of the laws of Malta

3. Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector

4. Providers of financial products or financial advice

5. Vide definition in Part 1 of the 3rd Schedule of the Companies Act, Cap. 386 of the laws of Malta

6. The European Financial Reporting Advisory Group (EFRAG) will be responsible for developing these draft standards.

7. Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088

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