Political Agreement reached on the Corporate Sustainability Reporting Directive
On 21 June 2022, the Council of the EU and the European Parliament reached provisional political agreement on the corporate sustainability reporting directive (the “CSRD”).
The CSRD will amend the Non-Financial Reporting Directive1 to introduce more detailed reporting requirements in respect of sustainability issues such as environmental rights, social rights, human rights and governance factors. A draft proposal for the CSRD was produced by the European Commission in April 2021 (here).
The agreed text of this week’s provisional political agreement is not yet available, however press releases from the Council of the EU here and the European Parliament here have confirmed details of same.
The CSRD will apply to all large companies and listed companies (including listed SMEs)2. Non-European companies will be required to produce a sustainability report where a company generates a net turnover of €150 million in the EU and has at least one subsidiary or branch in the EU. Reporting will need to certified by an accredited independent auditor or certifier and published in a dedicated section of company management reports.
The European Financial Reporting Advisory Group (“EFRAG”) is responsible for producing European reporting standards to supplement the CSRD. See our briefing here with further detail on these standards.
The provisional agreement reached by the Council of the EU and the European Parliament is welcome news for financial market participants and financial advisors subject to sustainability disclosure requirements such as those contained in the Sustainable Finance Disclosures Regulation, the Taxonomy Regulation and related legislation. In a recent address to the Irish Funds Annual Global Funds Conference 2022, the Chair of ESMA stated that the CSRD and its accompanying reporting standards would “significantly improve the underlying sustainability information over time”.3
The Council of the EU and the European Parliament will now formally approve the provisional political agreement reached on the CSRD. The CSRD will enter into force 20 days after publication in the Official Journal of the EU.
The CSRD will apply in three stages:
- 1 January 2024 for companies already subject to the Non-Financial Reporting Directive;
- 1 January 2025 for large companies that are not presently subject to the Non-Financial Reporting Directive; and
- 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings.
- Directive 2014/95/EU
- An opt-out will be possible for SMEs during a transitional period. The proposal for the CSRD excludes listed micro-companies from mandatory reporting obligations.
- Ms Verena Ross address to the Irish Funds Annual Global Funds Conference 2022 (here)
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.