Adoption of the Corporate Sustainability Reporting Directive (CSRD) by the European Parliament

On October 2, 2023, the European Parliament officially announced the adoption of the Corporate Sustainability Reporting Directive (CSRD). This marked a significant enhancement in the arena of corporate responsibility, particularly in terms of environment, social, and governance (ESG) issues across the European Union.

Background

The Corporate Sustainability Reporting Directive is an evolution of the Non-Financial Reporting Directive (NFRD), which required certain large companies to disclose information on their social and environmental impact. The need to improve and expand the scope of corporate sustainability reporting became evident as stakeholders, including investors, citizens, and governmental bodies, demanded more comprehensive and transparent ESG data.

Key Features of the CSRD

• Expanded Scope: The CSRD broadens the scope of companies required to report sustainability-related information, now including all large companies (not just those publicly listed) and all companies listed on regulated markets, except micro-enterprises.

• Standardized Reporting: It introduces a standardized reporting framework, helping ensure consistency and comparability of information across the EU.

• Audit Requirements: Companies must subject their reported information to third-party audits to enhance data reliability and integrity.

• Digital Accessibility: CSRD mandates the use of a digital format for reports, increasing accessibility and ease of analysis.

Implications and Significance

The adoption of the CSRD represents a major stride towards more sustainable business practices within the EU, holding businesses accountable for their environmental and social impact. It aligns corporate practices with the EU Green Deal and the commitment to climate neutrality by 2050. By imposing stricter and more standardized reporting requirements, it aims to promote transparency, better corporate governance, and informed decision-making among stakeholders.

The CSRD is expected to influence corporate behavior significantly, encouraging businesses to adopt more sustainable models which further integrate ESG factors into their operations and long-term strategies.