Corporate Sustainability Reporting Directive – a New Sustainability Standard for EU Companies
View Debevoise In Depth
Key takeaways:
- The European Commission’s proposed Corporate Sustainability Reporting Directive is expected to be formally adopted by the European Parliament on 9 November 2022. The Directive introduces detailed and prescriptive requirements for companies to report on sustainability-related matters in their annual financial statements, with a requirement for that information to be audited. It also substantially widens the scope of companies subject to sustainability-related reporting obligations.
- The proposed Directive will apply to all large EU companies and certain EU subsidiaries of non-EU parent companies, which are EU companies exceeding at least two of the following: more than 250 employees, a net turnover of more than €40 million or a balance sheet total of €20 million. In addition it will also apply to companies with securities listed on an EU “regulated market”, including small and medium-size enterprises, irrespective of whether the issuer is established in the European Union.
- The primary obligation under the Directive is to report on “sustainability matters”, which are environmental, social and human rights, and governance factors, including principal adverse impacts on sustainability factors under SFDR. Hence, companies will not only have to report on how various sustainability matters affect their business on a forward-looking as well as retrospective basis, but they also have to report on the impacts of their activities on people and the environment. These reporting obligations go substantially beyond what portfolio companies currently have to report on and will inevitably have an effect also on how companies operate.
- This Debevoise in Depth describes the reporting standards that must be complied with (and the impact on the business operations), and the timeline for compliance, by companies in scope of the Directive.