EU policymakers reached an agreement on the Corporate Sustainability Reporting Directive (CSRD). The text introduces obligations for companies to publicly disclose information on their sustainability impacts, risks and opportunities in their management report based on mandatory sustainability reporting standards. The reported sustainability information will have to be independently audited.
Accountancy Europe welcomes the final text agreed by the co-legislators. As Commissioner McGuinness noted “This agreement is a big step as for the first-time sustainability reporting is being put at the same level as financial reporting”. This is fundamental to support the Green Deal’s ambitions and transform Europe into the first climate neutral economy by 2050.
The CSRD expands the scope to all large and listed companies with 250+ employees but also to non-EU companies with substantial activities in the EU. We support that this includes companies that significantly impact the environment and society. Listed SMEs will be subject to proportionate requirements that will help reduce reporting burden while still addressing the demand of financial institutions for reliable sustainability-related data.
Sustainability reporting standards
The CSRD mandates disclosures based on -to be developed- sustainability reporting standards. This is essential to provide users with relevant, comparable and reliable information that enables sustainable decision-making. We strongly encourage the EU to seize the current window of opportunity for international cooperation (as stated in article 29 b) 3). A global baseline with interconnected European and international standards will allow more efficient sustainability reporting. European standards’ credibility, adoption and effectiveness will heavily depend on properly supervised due process followed by EFRAG.
The CSRD also requires proportionality of sustainability reporting standards and phasing-in of their disclosure requirements. We urge EFRAG to adopt a smart phasing-in approach which starts with the most important standards for largest companies in all sectors to transition their business model and disclose company data. Gradually, disclosure requirements within each individual standard can be added and then sector-specific standards for relevant sectors. Only after that, value chain disclosures should be required.
The CSRD introduces a gradual approach to reporting starting with companies that are in the scope of the Non-Financial Reporting Directive. These companies are expected to disclose sustainability information as from 1 January 2024. Other large listed and non-listed companies will be expected to report a year later.
While we stand behind the urgency to implement the CSRD, this will allow companies new to sustainability reporting to get systems and processes in place needed for quality reporting. All involved parties will have to advance quickly to meet the ambitious timeline while taking up the challenge to report credible and quality sustainability information.
The CSRD introduces an EU-wide requirement for limited assurance on sustainability information with moving to reasonable assurance as an end goal. The statutory auditor, another auditor or an independent assurance service provider can conduct an assurance engagement.
Accountancy Europe supports opening the market to assurance providers applying equivalent requirements in line with the Audit Directive (2006/43/EU), i.e., professional assurance standards, ethical requirements including independence, quality framework and public oversight. It is important that stakeholders can rely on consistent quality of assurance whoever provides it. The accountancy profession has been providing assurance services on sustainability information for over two decades. They have built up expertise in this area supported by the professional framework and standards they follow.
It is essential to ensure connectivity between financial and sustainability reporting. This will enable all stakeholders to be fully informed and effectively support a true transition. Statutory auditors are well placed to perform assurance engagements on sustainability reporting. Their involvement in financial and sustainability aspects would support information connectivity.
We have reached a key milestone, but the CSRD now needs to be implemented. Effectiveness should be the green transition’s leading principle. Reporting is only an element of the puzzle and policymakers need to do urgently more to reach the EU Green Deal goals to enable a true and just transition toward a sustainable economy.