European Union: 10 Things you need to know about the Corporate Sustainability Reporting Directive (CSRD)

In brief

The European Union is on the verge of adopting the Corporate Sustainability Reporting Directive (CSRD) following a vote in the European Parliament  on 10 November 2022. Compared to its predecessor, the CSRD expands the scope of companies required to disclose more detailed information regarding the impact of their activities on sustainability matters in their management report. The goal of the CSRD is to provide more transparency to the public on companies' sustainability motives and efforts and to help investors and other stakeholders evaluate the non-financial performance of companies.


Contents

Although there is a lot more to it, here are 10 Things you need to know about the CSRD:

  1. The CSRD captures a substantial larger scope of listed and non-listed companies and non-EU companies with businesses in the EU being approximately 50,000 companies compared to about 11,700 companies falling under the current rules.
  2. On sustainability matters (i.e., environmental, social and human rights, governance and sustainability factors), the management report needs to disclose (i) the principal actual or potential impacts related to the company's own operations and (ii) the implementation and outcome of the due diligence process of the company's value chain, including its products, services, business relationships and its supply chain.
  3. The management report needs to provide a description of the role of management boards and supervisory boards regarding sustainability matters. It needs to outline the expertise and skills regarding sustainability matters in the fulfillment of roles.
  4. Moreover, the management report should be forward-looking, disclose set time-bound targets on sustainability matters and report on the progress of achieving such targets. Any environmental target needs to be substantiated with a statement confirming whether such target is based on conclusive scientific evidence.
  5. The double materiality reporting obligation is further clarified meaning that the management report should provide information on both the impacts of the activities of the company on sustainability matters and on the sustainability matters affecting the company.
  6. Companies are required to seek a 'limited' assurance opinion by a statutory auditor of the reported sustainability information in the management report. Such opinion should gradually move to a reasonable assurance opinion, the latter being a more demanding assurance process. The European Commission envisages to implement standards for such reasonable assurance opinion before October 2028.
  7. The CSRD requires Member States to safeguard the quality of the assurance of sustainability reporting and makes it subject to investigation and sanctions.
  8. The CSRD requires companies' sustainability report to be drafted according to detailed, comprehensive, and sector-specific reporting standards (the so-called European Sustainability Reporting Standards), published in digital format, thereby allowing for a better overview and comparison of the reported sustainability information between companies.
  9. In-scope companies must make their management reports available on their websites, free of charge. This concept is referred to as 'digitally tagged'.
  10. The reporting obligations will be phased in between 2024 and 2028 and allow listed SME's until 2028 to adapt to the new rulesThe CSRD is likely to be adopted by the Council of the European Union by the end of November and the first set of reporting standards are to be adopted by the European Commission in June 2023.

Are you preparing for the implementation of the CSRD? Reach out to us for advice. 


Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.