Corporate Sustainability Reporting
EU rules require large companies and listed companies to publish regular reports on the social and environmental risks they face, and on how their activities impact people and the environment.
New rules on corporate sustainability reporting: The Corporate Sustainability Reporting Directive
On 5 January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force. This new directive modernises and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability.
The new rules will ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues. Finally, reporting costs will be reduced for companies over the medium to long term by harmonising the information to be provided.
The Corporate Sustainability Reporting Directive
is published by The European Union to
decribe rules for organizations to report sustainability disclosures across
several topics pertaining to environmental and social issues. Companies subject
to the CSRD will have to report according to European Sustainability Reporting
Standards (ESRS).
The European Parliament’s Legal Affairs Committee has voted
to delay key aspects of the Corporate Sustainability Reporting Directive (CSRD)
by two years.
Planned implementation
timeline:
Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards (ESRS). The standards were developed by the EFRAG, previously known as the European Financial Reporting Advisory Group, an independent body bringing together various different stakeholders.
The ESRS were published in the Official Journal on 22 December 2023 under the form of a delegated regulation. They are tailored to EU policies, while building on and contributing to international standardisation initiatives.
The CSRD also requires assurance on the sustainability information that companies report and will provide for the digital taxonomy of sustainability information.
Rules introduced by the Non-Financial Reporting Directive
The rules introduced by the Non-Financial Reporting Directive (NFRD) remain in force until companies have to apply the new rules of the CSRD. Under the NFRD, large companies have to publish information related to
These reporting rules apply to large public-interest companies with more
than 500 employees. This covers approximately 11 700 large
companies and groups across the EU, including
Policy making timeline
8 February 2024 Legislation - European sustainability reporting standards
Political agreement between the European Parliament and the Council on postponing adoption deadlines for certain European Sustainability Reporting Standards (ESRS).
22 December 2023 Legislation - European sustainability reporting standards
Publication of the European Sustainability Reporting Standards (ESRS) in the Official Journal.
17 October 2023 Legislative proposal - European sustainability reporting standards
2024 Commission work programme: Proposal for a Decision as regards the time limits for the adoption of sustainability reporting standards for certain sectors and for certain third-country undertakings.
31 July 2023 Legislation - European sustainability reporting standards
Adoption of the European Sustainability Reporting Standards (ESRS), accompanied by questions and answers on the ESRS.
9 June 2023 Legislation - European sustainability reporting standards
Opening of feedback process of a first set of draft sustainability reporting standards for companies, opening a four-week public feedback period.
Following the feedback period, the Commission will consider the feedback received before finalising the standards as delegated acts and submitting them to the European Parliament and Council for scrutiny.
14 December 2022 Legislation - Corporate Sustainability Reporting
Publication of the Corporate Sustainability Reporting Directive (CSRD) in the Official Journal
23 November 2022 Standards - Corporate Sustainability Reporting
First set of draft EU sustainability reporting standards published by EFRAG
22 June 2022 Legislation - Corporate Sustainability Reporting
Political agreement by the European Parliament and the Council on the Corporate Sustainability Reporting Directive (CSRD)
21 April 2021Legislative proposal - Corporate Sustainability Reporting
Proposal for a Corporate Sustainability Reporting Directive (CSRD) to amend the reporting requirements of the NFRD.
8 March 2021 Reports - EU sustainability reporting standards
EFRAG reports on development of EU sustainability reporting standards
20 February 2020 Consultation - Non-financial reporting
Public consultation on the review of the non-financial reporting directive
Turkey: Sustainability Reporting Standard TSRS 1 and TSRS 2, Decision, December 2023
ESG Standards
ESG reporting standards are agreed-upon
quality requirements that reporting entities are expected to meet. These
standards contain specific and detailed criteria or metrics for ‘what’ should
be reported on each topic and will, in general, have the following features in common:
These features help to
ensure that the information being reported is relevant and comparable to
stakeholders.
There are a number of
different ESG disclosure standards in use today, each with its own strengths
and weaknesses – some of the most widely used standards include:
In July, the European
Financial Reporting Advisory Group (EFRAG) released the ESRS, the new European
Sustainability Reporting Standards. The ESRS underpins the EU’s sustainability disclosure regulation, the CSRD, which will apply to
over 50,000 companies once they start reporting for the first time in the 2024
financial year.
ESG Frameworks
Frameworks offer a way to organize and structure information. They provide a flexible ‘frame’ for thinking about a problem but don’t dictate a specific solution. Frameworks can be thought of as a set of guiding principles that help people make sense of the complex information in an ESG report.
Unlike standards, there are plenty of frameworks available for companies to use in their reporting. Some of the most widely used ESG reporting frameworks include:
1.Carbon Disclosure Project (CDP)
CDP
(formerly the ‘Carbon Disclosure Project’) is a non-profit founded in 2000. It
operates the largest disclosure system globally for companies and cities.
Their role
is to collect and analyze data on environmental performance and provide
insights to improve sustainability practices. Companies submit information to
CDP by filling out the CDP Questionnaire on one or more of
several topic platforms: climate, water, supply chain, and forests.
The Climate
Score produced by CDP can be fed into EcoVadis, a sustainability ratings
provider, to categorize companies into various levels: bronze,
silver, gold, or platinum.
In collaboration with the SME Climate Hub, CDP launched a new climate
disclosure framework in 2021. The framework helps businesses track and report
their progress towards commitments, as well as demonstrate climate
leadership in their respective industries.
2. The Global
Reporting Initiative (GRI)
The GRI Standards are widely recognized as a global benchmark for sustainability reporting and are used by thousands of companies, governments, and organizations worldwide.
3. The
Sustainability Accounting Standards Board (SASB)
Another non-profit, the SASB standards are designed to help companies
identify and report on financially material sustainability issues that are
relevant to their industry.
By using the SASB,
companies can provide investors with more useful and comparable information
about their sustainability performance, which can help them make
better-informed investment decisions.
It effectively connects businesses and investors to the financial
impacts of sustainability.
4. International Sustainability Standards Board (ISSB)
The International Sustainability Standards Board (ISSB) is an independent, private-sector body founded by the International Financial Reporting Standards Foundation (IFRS) that is looking to develop “high-quality, understandable, enforceable, and globally accepted accounting and sustainability disclosure standards.”
The objective of the ISSB is to provide investors and other market participants with consistent information about companies’ sustainability-related risks and opportunities in order to help them make informed decisions across a range of industries.
To date, the ISSB has not released any standards; however, it has confirmed that it will issue its first two finalized frameworks by the end of June, with an expectation that the first corporate reports aligned with these frameworks will be issued in 2025.
5. The
Science-Based Targets Initiative
The SBTi’s reporting framework provides guidelines for how organizations should report their progress, including what data they should collect and how they should measure their emissions. The framework also includes specific requirements for reporting on different types of emissions, such as Scope 1 (direct) and Scope 2 (indirect) emissions, as well as Scope 3 (indirect) emissions related to the organization’s value chain.
6. UN
Sustainable Development Goals
While not a reporting framework in the traditional sense, the United Nations Sustainable Development Goals (SDGs) are a set of 17 global objectives that aim to address the world’s most pressing environmental, social, and economic challenges.
The SDGs provide a common language and framework for organizations to align their strategies and to report on their contributions to achieving the goals.
Several reporting frameworks, such as the CDP, GRI, and SASB, collaborate with these goals, and organizations can disclose their progress towards them using these frameworks. Governments can leverage this data to track national progress and develop related policies.
