In a major step towards the establishment of a new sustainability reporting system in Europe, the European Parliament adopted the Corporate Sustainability Reporting Directive (CSRD) on Thursday, in a 525 to 60 vote (with 28 abstentions).
The vote sets the stage for a dramatic overhaul and expansion of corporate sustainability reporting in the EU to be implemented by the beginning of 2024.
The CSRD is aimed as a major update to the 2014 Non-Financial Reporting Directive (NFRD), the current EU sustainability reporting framework. The new rules will significantly expand the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000 currently, and introduce more detailed reporting requirements on company impacts on the environment, human rights and social standards and sustainability-related risk.
Following a recent agreement between the EU Parliament and EU Council, the rules will also require companies to have their reported sustainability information independently audited, and will apply to some large non-EU companies.
The CSRD will require disclosure under a common framework of European Sustainability Reporting Standards (ESRS), currently under development by the European Financial Reporting Advisory Group (EFRAG). Under the new system, companies will be required to report on issues ranging from environmental sustainability and social rights to human rights and governance factors.
With the adoption of the CSRD by the EU Parliament, the proposal will move on to the Council, which is expected to adopt the proposal later this month. The rules will begin applying from the beginning of 2024 for large public-interest companies with over 500 employees, followed by companies with more than 250 employees or €40 million in revenue in 2025, and listed SMEs in 2026.