On 28 November 2022, the Corporate Sustainability Reporting Directive (“CSRD Directive“) was formally adopted by the EU Council.
The regulatory act, waiting to be published in the EU Official Journal, facilitates the transition to a sustainable economy by helping the flow of non-financial information and increasing the companies' requirements to disclose information about their social, environmental and governance effects.
The CSRD Directive acts by amending the following regulations:
(i) Directive 2013/34/EU concerning annual financial and consolidated financial statements;
(ii) Directive 2004/109/EU concerning the obligations of transparency applicable to issuers of securities;
(iii) Directive 2006/43/EC on annual accounts;
(iv) Directive 2014/95/EU about the European non-financial reporting;
(v) EU Regulation No. 537/2014 on specific requirements regarding the statutory audit of public interest entities.
Among the main new features introduced, we highlight the following:
1) Expansion of the number of companies subjected to the sustainability reporting framework.
The CSRD Directive provides that the sustainability reporting requirements are extended to:
– large public interest enterprises with more than 500 employees;
– large companies with more than 250 employees and/or more than EUR 40 million turnover and/or more than EUR 20 million balance sheet total;
– to companies listed on regulated markets, including small and medium-sized enterprises (SMEs), with the exception of micro-enterprises;
– to non-European companies with net revenues from sales and services exceeding EUR 150 million in the EU and having at least one subsidiary in the EU.
2) Obligations to certify sustainability information regarding environmental, social, and governance factors and greater detail in the sustainability reporting according to the mandatory European principles.
The sustainability reporting standards must consider the following information:
– on environmental factors: information regarding climate change mitigation, climate change adaptation, water and marine resources, resource use and circular economy, pollution, biodiversity and ecosystems;
– on social factors: information regarding equal opportunities for employees and programs to develop the skills of each of them, the conditions of work to which they are exposed, and respect for human rights;
– on governance factors: information regarding the role of the boards of directors and Statuary Auditors, management and control authorities, corporate ethics and culture, corporate political commitments, business relationship management, internal control and enterprise risk management system.
The reporting activities imposed to companies should be carried out according to the principle of “double materiality”: it means disclosing both information about the environmental and social risks they are exposed to, and the impacts caused by the company's activities on the environment.
With a view to standardization and thus greater usability for third parties, information should be reported in the management report based on common reporting standards developed by the European Financial Reporting Advisory Group (EFRAG) and subsequently published in digital format.
These reports will then have to be certified by auditors or statutory auditors (in line with what is already required by Directive 2013/34/EU), who will have to acquire a high level of technical and specialized expertise in sustainability.
Transitional regime and entering into force
The Directive CSRD's new obligations will be applied according to a multi-stage transitional regime. The regulations will enter into force as follows:
– in 2025 (communication on the financial year 2024) for large companies already subject to the Non-Financial Reporting Directive 2014/95/EU;
– in 2026 (communication on the financial year 2025) for large companies currently not subject to the Non-Financial Reporting Directive;
– in 2027 (communication on the financial year 2026) for listed SMEs (with the exception of micro-enterprises), small and non-complex credit institutions and insurance companies;
– in 2029 (communication on the financial year 2028) for non-European companies.
The CSRD Directive is another step (like the recent EU Regulation 2020/852, which identifies the criteria under which an investment can be considered environmentally sustainable) of the EU policy to integrate sustainability into the corporate organizational structure of economic operators.
The economic operators shall therefore actively integrate sustainability into their organization so that it is promoted throughout the entire value chain.
Always on the assumption that such initiatives should be interpreted not merely as mere compliance and burdens, but as promotion and development activities, given now the attention of many stakeholders (customers, media, investors) to the issue of environmental and social protection.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
