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Article

22 Jun 2022

Author:
Alliance for Corporate Transparency

Alliance for Corporate Transparency outlines key advances & missed opportunities in EU Corporate Sustainability Reporting Directive agreement reached between policy-makers

'EU policymakers strengthen rules for companies’ sustainability disclosures with mandatory ESG standards, but delay its implementation'

On Tuesday 21 June, the trilogue negotiations between the European Commission, Parliament and Council concluded with an agreement for the EU Corporate Sustainability Reporting Directive (CSRD). 

The reformed rules will tackle major problems on the quality, consistency and comparability of sustainability information disclosed by companies under existing EU legislation, as evidenced in the studies published by the Alliance for Corporate Transparency.

The CSRD clarifies transparency obligations for large companies operating in the EU on their sustainability impacts, risks and opportunities - including their decarbonisation plans and performance -, and mandates the development and adoption of mandatory ESG corporate sustainability reporting standards.

This reform is the bedrock to ensure the success of the European sustainable finance agenda, the EU Green Deal and the REPowerEU plan...

5 key changes & missed opportunities:

1. The scope of the legislation is expanded to all large listed and non-listed companies with more than 250 employees.... Listed SMEs were included in the initial proposal to report in a mandatory way as of 2026 following simplified standards... The final text allows them to opt-out until 2028, which will have major implications for SMEs’ readiness to leverage sustainable finance flows... The European Parliament as well as investors, civil society and academic studies had recommended an approach to define high-risk sectors and expand the scope to cover SMEs in those industries.

2. Companies’ reporting obligations have been specified, namely for the disclosure of:

  • Transition plans to reach climate neutrality by 2050...
  • Time-bound targets related to sustainability issues and companies’ progress to achieve them... 
  • Sustainability due diligence information, i.e. transparency on the process and adverse impacts identified in the company’s value chain, and actions taken to address such impacts.

3. The key measure of the CSRD is the development and adoption of mandatory ESG standards based on double materiality (i.e. the disclosure of companies’ impacts on the planet and people as well as risks and opportunities to the company arising from sustainability matters).

  • Following CSRD guidance, this will include quantitative and qualitative data, and cover both retrospective and forward-looking information; 
  • Draft EU standards (sector agnostic) have been published and are open for public consultation until August... The expert group, part of the EFRAG new Sustainability Reporting Pillar, will now continue with technical proposals for sector-specific standards. 

4. In terms of timeline, the agreement reached by co-legislators proposes a delayed application to 2024 for those companies already covered by existing legislation (the EU Non-Financial Reporting Directive) and 2025 for other large listed and non-listed companies (above 250 employees). While the initial proposal was set to be integrated in national law by the end of 2023, the deal now includes an 18-month transposition period...

5. An assessment of the... Directive and adoption of standards by SMEs is requested of the European Commission before 2028, which is far too late considering that voluntary measures have proven to not be effective and a major portion of companies in highly polluting sectors are not covered...

The organisations of the Alliance for Corporate Transparency welcome the above developments, in line with NGO policy recommendations, and regret the missed opportunities... 

Timeline