Editor's note: This article was updated on Nov. 28 to reflect new information from the European Financial Reporting Advisory Group.
In a major step forward for international regulations towards ESG disclosure, the European Financial Reporting Advisory Group (EFRAG), the body responsible for developing the reporting standards for the CSRD, has released the latest draft of the European Sustainability Reporting Standards (ESRS) to the European Commission for consideration. These standards will, over time, form the mandatory disclosures of the Corporate Sustainability Reporting Directive (CSRD).
This development comes a month after the European Parliament announced their adoption of the CSRD, which builds on the EU’s pre-existing Non-Financial Reporting Directive (NFRD), extending the scope of the reporting requirement, requiring assurance of the data disclosed, providing greater specificity, verifying that the information disclosed is also present in published company reports, and promoting machine-readability. This latest move, meant to end greenwashing and empower the European Union’s (EU) social market economy, requires companies to disclose environmental, social and governance matters that align with the EU’s climate goals.
Who will be impacted?
With the hopes of expanding sustainability reporting globally, CSRD will impact approximately 50,000 companies in the EU that will now be required to collect and share sustainability information. Companies based outside of the EU but doing business in the EU may also be affected.
What is the impact on your business of the CSRD regulations?
The announced EU sustainability reporting requirements will apply to all large companies, both public and private. Companies with operations outside the EU that generate a net turnover of €150 million in the EU and have at least one subsidiary or branch in the EU will also be required to provide a sustainability report. The draft European Sustainability Reporting Standards (ESRS) have been released but are still pending adoption by the European Commission, which is scheduled for June 2023.
CSRD will then be phased-in starting in 2024:
- From 1 January 2024 for large public-interest companies (with over 500 employees) already subject to the non-financial reporting directive, with reports due in 2025;
- From 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets), with reports due in 2026;
- From 1 January 2026 for listed small and medium enterprises (SMEs) and other undertakings, with reports due in 2027. SMEs can opt out until 2028.
To ensure that all companies are providing accurate and reliable information, companies must use an independent auditor or certifier.
With the EU’s goals to end greenwashing, be more transparent, and make sustainability reporting the norm, CSRD is one of several EU regulatory initiatives, including:
- EU Taxonomy, a classification system establishing a list of environmentally sustainable economic activities.
- Sustainable Financial Disclosure Regulations (SFDR), where financial market participants provide detailed sustainability information on their advisory and investment product activities.
Non-financial vs. sustainability reporting: What’s the difference?
With a rapidly growing ecosystem of investors, regulatory bodies, frameworks, and raters and rankers, the term ‘ESG’ (Environmental, social, governance) and its related topics are now widely associated with a financial impact. In consequence, the European Commission’s assessment was that non-financial reporting no longer responded to the needs and language that many organizations, regulators and experts were using. In order to align better with the market, they shifted from addressing ‘non-financial’ reporting to ‘sustainability’ reporting with information relating to EU climate goals. Hence, the shift in focus from ‘Non-Financial’ Reporting Directive (NFRD) to the ‘Corporate Sustainability’ Reporting Directive (CSRD).
How can Nasdaq help my business meet the new requirements?
To ensure companies can successfully prepare to meet not only CSRD but these additional regulations, Nasdaq ESG Solutions can help you prepare:
- Nasdaq’s OneReport software and its robust workflow and educational tools now support our EU ESG Reporting Readiness Module to help you stay up to date on information regarding key EU ESG regulations: CSRD, EU Taxonomy, and SFDR.
- Supported by our EU ESG Regulatory Reporting Readiness Module, information may be easily accessed, shared and documented by key organizational stakeholders.
- Nasdaq ESG Solutions recognizes that EU ESG regulations continue to take shape and evolve with the current implementation of the EU Taxonomy, the SFDR, and the process to replace NFRD with CSRD (and its ESRS reporting standard) over the coming years, among other developments.
- As these regulations evolve, our Reporting Readiness Module may help you continue to stay up-to-date and respond to these developments if you are an EU-based company or otherwise affected by these regulations.
As these announcements continue to evolve, please check back for more updates.
Are you prepared? Contact Nasdaq ESG Solutions
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