From 2024, large EU companies – and non-EU businesses with substantial activity in the EU market – will need to publicly disclose information on the way they operate and manage social and environmental risks.
On Tuesday (21 June), MEPs and EU governments struck a provisional agreement on new reporting rules for large companies.
The Corporate Sustainability Reporting Directive (CSRD) will set out to make businesses more accountable by obliging them to disclose their impact on people and the planet.
This aims to end greenwashing and lay the groundwork for sustainability reporting standards at global level.
The European extra-financial audit market will be standardised, much more rigorous and transparent
The non-financial information that companies are currently incentivised to report is largely “insufficient for investors and other stakeholders”, EU Parliament says.
“Reported data can also be hard to compare. Investors and civil society want to know about the impact that companies have on people and the environment. The new law is one of the cornerstones of the European Green Deal and the Sustainable Finance Agenda.”
The new EU sustainability reporting requirements will apply to all large companies (with over 250 employees and a 40 million euro turnover, as defined in the Accounting directive), whether listed or not. Companies will have to report on their impact on the environment, human rights, social standards and work ethics, based on common standards.
“Rigorous and transparent”
The agreement stipulates that the information companies provide on their impact on the climate or human rights will be independently audited and certified. Financial and sustainability reporting will be on an equal footing and investors will finally have access to reliable, transparent and comparable data.
MEPs insisted that non-EU companies with substantial activity in the EU market (150 million euro in annual turnover in the EU) will have to follow equivalent reporting rules. Member states will supervise compliance with the help of the Commission.
A handful of SMEs listed on public markets will be subject to lighter reporting standards. MEPs secured the possibility for them to opt out of the new system until 2028. MEPs also inserted guarantees so subcontractors can only be asked by their contractual partners to provide information according to a lighter version of reporting standards.
Pascal Durand (Renew Europe, FR), who led the negotiations for the Parliament, said: “Today, information on a company’s impact on the environment, human rights and work ethics is patchy, unreliable and easily abused. Some companies do not report.
“Others report on what they want. Investors, consumers and shareholders are at loss. From now on, having a clean human rights record will be just as important as having a clean balance sheet”.
“The European extra-financial audit market will be standardised, much more rigorous and transparent. Parliament succeeded in securing an opening of the audit market by member states in order to make room for new certified players to become major players and not just leave it in the hands of the financial auditors, notably the big four”, added Mr Durand.
Parliament and Council will have to formally approve the agreement before it is published in the EU Official Journal. It will enter into force 20 days after publication and its provisions will have to integrated into member states’ national laws after 18 months.