Council gives final green light to Corporate Sustainability Reporting Directive (CSRD) (Update)

30 January 2023 3 min read

At a glance

On 28 November 2022, the European Council gave its final approval to the Corporate Sustainability Reporting Directive.

ESG (Environmental, Social and Governance) considerations are becoming increasingly important for businesses with the COVID-19 pandemic leading to a renewed focus on employers’ social impact and their regulatory and legal compliance, including treatment of workers and commitment to D&I initiatives. As a result, to attract and retain talent and investors, employers need to be able to show a commitment to sustainable business practices. This is now reflected at EU level with new rules being introduced to plug the gaps in existing rules on the provision of sustainability information.

Progress of CSRD so far

On 21 April 2021, the European Commission presented the Corporate Sustainability Reporting Directive as part of the European Green Deal and Sustainable Finance Agenda. The CSRD serves the purpose of ensuring companies report reliable and comparable information on sustainability.

On 24 February 2022, EU Member States unanimously agreed on the Council’s position on the CSRD proposal. On 21 June 2022, the Council and the European Parliament reached a provisional agreement on the CSRD, which was endorsed by EU Member States’ representatives on 30 June 2022.

Most recently, on 28 November 2022, the European Council gave its final approval to the CSRD. Under the CSRD, certain companies will be required to publish detailed information on sustainability matters, reporting how their business model affects their sustainability, as well as the influence of a range of external factors such as climate change and human rights on their activities.

Who does the CSRD apply to?

The CSRD applies to:

All large companies meeting certain balance sheet / turnover / employee thresholds, whether listed or not;
SMEs with securities listed on an EU regulated market, except micro entities (although an opt out option may be available for listed SMEs during a transitional period, exempting them from the application of the CSRD until 2028); and
Non-EU companies, if they generate a net turnover of EUR 150 million in the EU and have at least one subsidiary / branch in the EU exceeding certain thresholds.

When will the new rules apply?

The rules will be applied in 4 stages:

For the financial year 2024, reporting in 2025 will be for companies already subject to the Non-Financial Reporting Directive (NFRD);
For the financial year 2025, reporting in 2026 will be for large companies not currently subject to the NFRD;
For the financial year 2026, reporting in 2027 will be for listed SMEs, small and non-complex credit institutions, and captive insurance undertakings; and
For the financial year 2028, reporting in 2029 for non-EU enterprises with a net turnover of 150 million+ in the EU, if they have at least one subsidiary in the EU.

Now that the legislative Act has been adopted, once signed by the President of the European Parliament and President of the Council, it will be published in the Official Journal of the European Union and enter into force after a 20 day period. Member States will have 18 months to implement the new rules.

The European Financial Reporting Advisory Group will be responsible for developing draft European Standards.