Sustainability reporting in Europe – All you need to know
Every year sustainability reporting in Europe for companies operating in the European Union accelerates. Below you can read the key points of corporate sustainability reporting that are valid today and in the future.
EU Green Deal
Climate change and biodiversity degradation pose a threat to Europe and the world. To prevent aggravating climate change further and to overcome the challenges caused by climate change and biodiversity loss, the European Union established a European Green Deal.
The EU Green Deal’s short-term goals are:
- Europe to be the first climate-neutral continent by 2050
- Cut greenhouse gas emissions by 55% compared to 1990-levels
- 3 billion trees planted in the EU by 2030
In the long term the Green Deal aims to transform the EU into a modern, resource-efficient and competitive economy, ensuring:
- no net emissions of greenhouse gases by 2050
- economic growth decoupled from resource use
- no person and no place is left behind
Corporate Sustainability Reporting in Europe
Under EU law large companies are obligated to report annually on company operations and how a company manages social and environmental challenges. The sustainability reporting regulations help to direct financing towards sustainable companies and activities, supporting the EU Green Deal goals for 2030 and 2050.
A key contribution to achieving the European Green Deal goals is to improve the data on the sustainability risks companies are exposed to and their impact on people and the environment. Improved data requires improved and mandatory corporate reporting on these issues.
Today, approximately 12000 public-listed companies are required to report, however, by 2027 over 50 000 companies will be impacted by European sustainability standards under the Corporate Sustainability Reporting Directive (CSRD).
- All large companies (stock market lister or not) will have to adhere to the European sustainability standards, already reporting companies from 2025 and large companies currently not reporting from 2026.
- Listed SMEs will have time until 2027 to adapt to coming reporting standards and requirements.
- The reporting requirements will also cover companies with headquarters outside the EU with over 150€ million in turnover in the EU from 2029.
European sustainability reporting standards
The European Sustainability Reporting Standards (ESRS) specify the obligations of the Corporate Sustainability Reporting Directive (CSRD).
The ESRS define the minimum level of mandatory corporate responsibility information for companies. All companies report in addition to the general principles related to sustainable business operations:
- strategy and business model
- sustainability effects
- sustainability risks and opportunities.
The standards were prepared with the choices of various stakeholders, the European financial reporting advisory group EFRAG in November the second set of EU sustainability reporting standards. Based on these 12 standard drafts, the commission will publish this standard in the summer of 2023. Read more here.
Mandatory reporting requirements
In 2023, the first round of full EU taxonomy reporting was required from companies reporting under the NFRD. From 2024 onwards, the scope of the EU taxonomy will expand as the Corporate Sustainability Reporting Directive (CSRD) is implemented, requiring more and more companies to include EU Taxonomy information in their sustainability reporting.
Corporate Sustainability Reporting Directive (CSRD)
With CSRD reporting, a larger part of companies operating in the EU will be covered by taxonomy reporting, and in addition, companies must publish more detailed information in connection with their activity report, e.g., about the environmental and social impacts of their business.
The CSRD scope:
- Starting from 1 January 2024, all listed companies that employ more than 500 people (i.e. those that are already covered by the NFRD and are obliged to prepare a statement of non-financial information and to publish information according to the EU taxonomy).
- From January 1, 2025, listed and unlisted companies with more than 250 employees and more than €40 M in turnover.
- SMEs listed from 1 January 2026.
- Third-country companies with net turnover above 150 million in the EU from 1 January 2029.
5 steps to prepare for CSRD – read more here
EU Taxonomy
EU taxonomy is part of the EU Green Deal, which aims to promote the EU carbon neutrality targets by 2050. EU taxonomy requires companies to classify their environmentally sustainable activities and investments. The aim of the Taxonomy is to get the financial market to direct investments towards more environmentally sustainable solutions.
As of January 2023, companies must assess the sustainability of their economic activities. This must happen in accordance with the technical screening criteria for the EU taxonomy climate goals.
EU Taxonomy in a nutshell – Read more here.
EU’s Directive on Corporate Sustainability Due Diligence (CSDD)
In February 2022, the European Commission proposed a Directive on corporate sustainability due diligence (CSDD). CSDD places companies with a key role in building a sustainable economy and society in the EU and complements several current sustainability reporting legislation, such as the CSRD, the Sustainable Finance Disclosure Regulation and the EU Taxonomy regulation.
Under the CSDD companies are required to:
- integrate due diligence into policies;
- identify actual or potential adverse human rights and environmental impacts;
- prevent or mitigate potential impacts;
- bring to an end or minimise actual impacts;
- establish and maintain a complaints procedure;
- monitor the effectiveness of the due diligence policy and measures;
- and publicly communicate on due diligence.
The future of sustainability reporting
As sustainability reporting within Europe continues to develop, the legal and mandatory reporting requirements and due diligence work within the EU will increase. The EU aims to set a global standard for sustainability work and key features of sustainability reporting will have an impact outside the EU, encouraging the rest of the world to follow suit.
European countries outside the EU will most probably incorporate, or at least benefit from voluntary reporting from an early stage due to higher market pressure. All third-country companies with EU subsidiaries will have to report sustainability information based on CSRD from 2029, thereby affecting companies also on other continents.
The immediate next steps of future sustainability reporting in Europe include the adaption of the Corporate Due Diligence Directive and the addition of activities under the EU Taxonomy regulation. The EU has high ambitions for setting a legal framework to achieve the goals of the European Green Deal and combat the most threatening sustainability risks that impact our societies today.
Sources
https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1145