By: Emma Abrams
There are more and more incentives for businesses ready to be climate-forward, but there are also new regulations that will require companies to disclose climate information. One of those is the European Union’s Corporate Sustainability Reporting Directive (CSRD), which entered into effect Jan 5, 2023.
Under the already existing Non-Financial Reporting Directive (NFRD), some companies have had to report climate-related information in the EU. The Corporate Sustainability Reporting Directive expands the scope and reporting requirements of the NFRD. The CSRD was passed as part of Europe’s Green Deal, with the goal to cut greenhouse gas emissions and protect Europe’s environment. Under the CSRD, reporting companies must “ensure that its business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement…and the objective of achieving climate neutrality by 2050”.
The CSRD is expected to impact 50,000 companies in the EU, and more than 3,000 US-based companies. The following companies will be required to start including climate information within their annual management report:
- Companies previously subject to the NFRD, including non-EU listed companies with more than 500 employees will need to publish their first sustainability statement in 2025 for the 2024 financial year
- All large listed companies, including non-EU companies, will need to publish their first sustainability statement in 2026 for the 2025 financial year
- Listed SMEs, including non-EU listed SMEs, will need to publish their first sustainability statements in 2027, with an option to opt-out until 2028
- Third-country companies (including those from the US) that generate more than €150 million net turnover in the EU will need to publish their first sustainability statements in 2029 for the 2028 financial year
Because the CSRD requires reporting on a company’s whole value chain, up or downstream companies not within CSRD’s scope will still be impacted as companies compile the necessary information on their supply chain.
Companies will need to be able to describe the following information about their operations:
- The company’s business model and strategy, including the resilience of that model in regards to sustainability matters
- How this model and strategy takes into account stakeholders and impact on sustainability matters
- Risks and opportunities related to sustainability matters
- The company’s policies in relation to sustainability matters and a transition towards a sustainable economy
- Time bound targets set by the company, including emissions reductions
- The role of the administrative, management and supervisory bodies in relation to sustainability matters
- The due diligence process
- Principal actual or potential adverse impacts of the company and its value chain, and actions taken to manage those impacts
- Principal risks to the company related to sustainability matters
- Indicators relevant to the above disclosures
The CSRD directed the creation of a “comprehensive set of sustainability reporting standards” using the required information laid out by the directive. Those standards, the European Sustainability Reporting Standards (ESRS), were adopted by the European Commission July 31st of this year. These standards were created in-line with already existing standards for consistency in reporting across the globe. There will be proportionate standards for SMEs in order to reduce financial strain on smaller companies.
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