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More clarity in the CSRD–Significantly extending the reach of the EU Taxonomy

Updated: Jul 21



Following an agreement reached between the European Council and the European Parliament on all substantial matter regarding the future Corporate Sustainability Reporting Directive (CSRD) [1] much more clarity exists regarding the future application and implementation duties of EU Taxonomy. The CSRD will be nothing but the new legal standard according to which all large corporations and listed companies will have to report in the future based on the EU Taxonomy. Details on these reporting requirements are expected to be detailed by European Sustainability Reporting Standards [2], which are to be prepared by the European Financial Reporting Advisory Group. The European standards should contribute to the convergence of sustainability reporting standards at global level too, by supporting the work of the International Sustainability Standards Board.


Compared to earlier drafts, the latest compromise will see an even wider application duty of non-financial sustainability reporting based on EU Taxonomy as well as more detailed reporting requirements. It was agreed that the CSRD will amend the non-financial reporting directive (NFRD) by making this reporting obligatory to all large companies, irrespective of their number of employees, listed SMEs and also non-EU undertakings which have a significant turn-over, subsidiaries or assets in the EU. These companies are also responsible for assessing the information at the level of their subsidiaries.


In addition to new reporting obligations, the CSRD also introduces a certification requirement for sustainability reporting and improved accessibility of information, by requiring its publication in a dedicated section of annual company management reports. Sustainability report audits aim to ensure that information is trustworthy and accurate. Besides that, the European law-makers aim to also introduce competition into the market for audits, which is also underlined by the new role of independent assurance service providers, which can review the sustainability reports.


The envisaged implementation timeline sees three deadlines depending on the company categories. For the financial year 2024 companies which are already subject to the non-financial reporting directive (NFRD) have to report in 2025. For the financial year starting on or after 1 January 2025, large companies which are not covered yet by NFRD, are to publish their sustainability reports the year after. Listed SMEs as well as small and non-complex credit institutions and captive insurance undertakings have to start reporting for the financial year 2026. More details on how third country undertakings with activities in the EU will be applicable based on their financial figures are expected soon. First ideas eye at a staged implementation between 2025 and 2029. It is clear, however, that based on certain thresholds reporting will become obligatory for them, too.


The legal drafting and technical negotiation process will continue in the coming weeks and months until a draft law is expected in the third quarter of 2022. Both the Council and the Parliament will have to approve the text thereafter. The Directive will then have to be transposed within 18 months, before it can effectively enter into force.

The VIRIDAD digital solution is perfectly suited for the reporting obligation under the CSRD and offers a single interface compliance management for any company size.


SOURCES:

[1] Corporate sustainability reporting. European Commission, retrieved on June 27, 2022 from https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en#review


[2] Sustainability Reporting Standards Roadmap. EFRAG, retrieved on June 27, 2022 from https://www.efrag.org/Activities/2010051123028442/Sustainability-reporting-standards-roadmap




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