On November 10, 2022, the European Parliament finally adopted the Corporate Sustainability Reporting Directive (“CSRD“). The CSRD intends to expand the application of corporate sustainability standards across the market by including an even larger specter of business entities compared to the application scope of the Non-financial Reporting Directive (“NFRD“).
NFRD applied only to large companies with more than 500 employees. In contrast, the CSRD comes with larger ambitions and will apply not only to large companies but also to listed SMEs and third-country companies with significant operations on the EU market and a daughter company or a branch office in the EU. In addition, the CSRD lowered the threshold for large companies, resulting in a significantly broader inclusion. Companies will be obliged to compile sustainability reports, which will be subject to audit and must be publicly available for free. Of course, many delegated acts are yet to come.
What does this mean? Firstly, the reporting rules due to the NFRD currently include around 11.700. The adoption of CSRD will increase coverage to nearly 50.000 companies, which is a significant step in boosting compliance with ESG standards. The introduction of the CSRD should enable investors to have comparable data and reliable information about companies’ ESG performance and significantly contribute to ending practices such as greenwashing in the EU.
Secondly, all the reports, which will now be required to be more detailed, will have to be audited to ensure their reliability.
Thirdly, all the reports will be digitally available, making it easier for all interested parties to access them.
What are the next steps? The Council will adopt the CSRD on November 28, 2022, after which it will be signed and published in the EU journal. After 20 days from publishing, the CSRD will enter into force, and the rules will likely apply between 2024 and 2028.
By Milica Novakovic, Associate, Gecic Law
