Everything you need to know about corporate sustainability reporting in the EU: from the Non-Financial Reporting Directive to the Sustainable Finance Package and Europe’s Green Taxonomy.
Since 2018, certain companies in the European Union have had to disclose information on their environmental and social impact in a yearly report often called the Sustainability Report. The Non-Financial Reporting Directive (NFRD) was adapted into national law in all 28 member states, including in Spain with the Law 11/2018 on Non-Financial Information.
But this directive is about to change, with a proposal for a Corporate Sustainability Reporting Directive (CSRD) currently in discussions in the European Parliament. So who has to comply with these directives, and what specific information is required?
The Non-Financial Reporting Directive
The Non-Financial Reporting Directive (NFRD), published in 2014, required EU member countries to create national legislation to require companies with certain characteristics to publish information beyond their income statements. In particular, these companies are asked to report on social and environmental matters, with the aim of improving sustainability performance.
Who has to comply with NFRD
NFRD applied to all public interest companies with more than 500 employees, a balance sheet that exceeds €20 million or a turnover that exceeds €40 million. In the EU, this represents about 11,700 large companies and groups, including listed companies, banks, insurance companies and other companies designated by national authorities as public-interest entities.
What information should be disclosed
The NFRD requires these companies to disclose information about their business model, policies, outcomes, risks, risk management and key performance, as well as key performance indicators around four key sustainability issues: environment, social and employee issues, human rights, and bribery and corruption.
Companies must also disclose how sustainability issues may affect the company, and how the company itself affects its community and the environment, this is what the EU calls “double materiality”.
The main goal of the NFRD and the sustainability report is to help companies manage the transition towards a sustainable world economy with social justice and environmental protection. In addition, it helps to increase the confidence of investors, consumers and society in general in these companies.
The Corporate Sustainability Reporting Directive
Last year, the European Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which would amend the NFRD. The proposal extends the scope of compliance to more companies, requires the information to be audited and introduces more detailed reporting requirements in line with the EU Green Deal and Green Taxonomy.
The proposal sets common European reporting rules to increase transparency, requiring companies to report sustainability information in a consistent and comparable manner. According to the Commission, the new reporting requirements would apply to all large and all listed companies, including listed small and medium-sized enterprises (SMEs), though proportionate standards will be developed for SMEs.
Sustainable Finance Package and Green Taxonomy
The CSDR is part of the Sustainable Finance Package, which aims to help direct private investment towards the transition to a climate-neutral economy.
One important part of the package is the EU Green Taxonomy, which aims to clarify which economic activities contribute most to meeting the EU’s environmental targets. Last February, the European Commission caused controversy by revealing the latest draft of the taxonomy, which includes gas and nuclear as “sustainable” energy sources. This inclusion makes sense for the taxonomy’s mitigation and adaptation objectives, but may be counterproductive for the other four stated goals: water, circular economy, pollution and biodiversity.
Now, the Commission is inviting recommendations on how to achieve the remaining four objectives.
When will CSRD come into force
The first report in line with the CSRD will have to be submitted by companies on January 1, 2024, for the 2023 financial year. This means that there is no time to waste in preparing for this new legislation.
ClimateTrade offers a team of experts in non-financial reporting, as well as proprietary digital tools to support companies in this exercise. We can advise and guide your company through the process: get in touch.