The European Union has made huge efforts to become a role model of sustainability for other countries. This effort involves European taxonomy and regulations aimed to prevent climate disasters in the future. The Corporate Sustainability Reporting Directive (CSRD) can help to do so.
One of the main objectives of the EU is to reduce net greenhouse gas emissions by 55% of their previous 1990 numbers. By 2020 alone, the EU reduced its net emissions by 20%. However, this is still 35% below their 2030 target. To pick up the pace and achieve a 55% emission reduction goal, the European Commission has recently adopted a directive on corporate sustainability due diligence. This directive proposal aims to increase sustainability and encourage responsible behavior in large corporations.
What is the Corporate Sustainability Reporting Directive (CSRD) ?
The corporate sustainability reporting directive (CSRD) is an EU law requiring large companies to report topics related to sustainability and diversity. This directive is an updated version of the previous non-financial reporting law passed in 2014. The data report contains information on how organizations act and manage different social and environmental issues. This allows investors, policymakers, and other stakeholders to see an honest view of company behavior. The European Commission has one goal in mind; to hold businesses accountable for their impact on society. The policies listed in this directive include standards drafted by the European Financial Advisory Group. The EU insisted these standards would build on existing policies, benefiting international initiatives too.
What companies are affected by the Corporate Sustainability Reporting Directive?
Companies that need to report information to the EU must meet two or more of the criteria below:
- Companies that have 250 employees or more
- €40 million company turnover
- €20 million in total company assets
Additional businesses that are included in this directive are:
- Businesses labeled as public-interest entities by national authorities
- Companies listed in any regulated stock markets
The EU’s corporate sustainability directive plans to cover 49.000 companies. Under the previous reporting directive, only 11.000 companies were required to report non-financial data.
How are companies affected by Corporate Sustainbility Reporting?
The main goal of setting reporting standards for companies is to keep them accountable for their activities. Without restrictions in place, organizations would not willingly change the way they conduct business. The European Commission’s adoption of the emission trading system was a huge help to engage businesses in the Corporate Sustainability Reporting Directive. Each company is given an emission cap with allowances assigned by the European Commission. These allowances can be bought and sold to other companies. The emission cap includes one ton of carbon dioxide or other harmful greenhouse gases for each company. As time goes on, the emission allowance of the year is decreased. The gradual decline of the emission cap will lead to 55% of total emission reduction by 2050.
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What are the requirements of Corporate Sustainability Reporting?
Corporations that meet any of the criteria listed above will be required to publish information such as:
- Environmental protection offered by the company
- Social responsibility, treatment of employees, and working conditions
- Respect for human rights
- Anti-corruption and bribery
- Diversity on company boards (such as age, gender, educational, and professional status)
The above was covered in the previous non-financial reporting directive. The new corporate sustainability reporting directive adds the following requirements:
- Sustainability risk affecting the company
- Company impact on society/environment
- Targets and progress of climate action
- Disclosure of information on intangibles
When does Corporate Sustainability Reporting directive (CSRD) begin?
All EU member states need to start reporting according to EU law from 6th of July 2024. Corporations with more than 250 employees and more than 40 Mio turn over need to report from 2024 on, smaller businesses (SME’S) from 2026 on.
Under the previous non-financial reporting directive, adopted in 2017, companies were not required to prove their information to an outside party. However, this has changed. One of the newest policies is the mandatory need for a third party to verify certain data. This includes the integration in an auditor’s report, use of a key audit partner, and relevant scope of EU taxonomy and other information. With the start of this directive coming soon, Wegozero can support companies in achieving their emission targets. A circular economy is something we are working towards, with positive outcomes for society and the environment.
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What are the benefits of Corporate Sustainability Reporting?
The Corporate Sustainability Reporting directive brings positive value to groups within society. Some benefits for citizens are listed below:
- Better protection of human and labor rights
- Healthier environment for present and future generations.
- Increased trust in businesses.
- More transparency enables informed choices.
- Better access to justice for victims.
This reporting directive affects companies in similar ways. Below are a couple of the impacts to be expected:
- The harmonized legal framework in the EU creates legal certainty and a level playing field.
- Greater customer trust and employees’ commitment.
- Better awareness of companies’ negative environmental and human rights impacts.
- Better risk management and adaptability.
- Increased attractiveness for talent, sustainability-oriented investors, and public procurers.
- Higher attention to innovation.
- Better access to financial data
The Corporate Sustainbility Reporting Directive is an important EU law that requires companies to report non financial data in of a variety of different topics. Beginning in 2024, over 49.000 companies will be required to report information ranging from enviromental protection to social responsibility and diversity. This benefits both corporations and citizens in managing risk and building trust in the intentions of large businesses.
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