Recently the Council and the European Parliament reached a “provisional political agreement” on corporate sustainability reporting requirements for large companies from 2024, a European Parliament committee reported. The aim is to put an end to the so-called “greenwashing” and lay the groundwork for sustainability reporting standards on a global level.
“The corporate sustainability reporting directive amends the 2014 non-financial reporting directive. It introduces more detailed reporting requirements and ensures that large companies are required to report on sustainability issues such as environmental rights, social rights, human rights and governance factors,” the parliament’s legal committee said in a statement.
MEPs and EU governments have struck an ambitious deal on compulsory reporting on environment, social affairs and governance. From 2024, large companies will need to publicly disclose information on the way they operate and manage social and environmental risks.
— European Parliament (@Europarl_EN) June 22, 2022
Companies affected by the directive
EU rules on non-financial information will apply to “all large companies and all companies listed on regulated markets”, Small and medium-sized enterprises (SMEs) as well as non-European companies “generating a net turnover of EUR 150 million in the EU and which have at least one subsidiary or branch in the EU.”
The application of the regulation will take place in three stages. The first stage beginning on January 1, 2024, will encompass companies already subject to the non-financial reporting directive. The second stage will compel companies that are not presently subject to the non-financial reporting directive to provide adequate reporting from January 1, 2025. The third stage, starting on January 1, 2026, will add “listed SMEs, small and non-complex credit institutions and captive insurance undertakings” to the list of companies.
However, some smaller listed companies will be subject to less stringent reporting standards, which they can opt out of by 2028.
Taxonomy
The legislation is part of a package that includes a “taxonomy” of what constitutes a green investment as well as ESG disclosures by asset managers to help with the transition to a climate-neutral economy. A formal vote by EU member states and parliament is needed to ratify Tuesday’s agreement. The Commission said the EU will become a leader in setting global sustainability reporting standards.
The US Securities & Exchange Commission has also proposed climate-related disclosures by companies, and the new International Sustainability Standards Board has proposed disclosure rules focused primarily on climate. However, unlike the EU, they do not require information about a company’s environmental impact.
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