The European Commission (EC), in continuation of its 2018 Sustainable Finance Action Plan, has been working relentlessly to enhance sustainability disclosure. This initiative is being carried out in collaboration with the European Financial Reporting Advisory Group (EFRAG). Over the recent years, they have been undertaking multiple reviews and consultations, with the objective of refining the existing legal framework in this realm. Read more about this in the full coverage by Skadden, Arps, Slate, Meagher & Flom LLP.
Integral to this initiative has been the Corporate Sustainability Reporting Directive (CSRD), which requires companies to consider various factors as part of their corporate social responsibility (CSR) commitments. Thus, understanding to whom this applies to and what should EU and Non-EU companies consider becomes essential.
The directive applies to large companies that are publicly listed in the EU, other than small and medium-sized enterprises (SMEs), and covers non-EU companies of the same category, if their securities are listed in the EU. The directive outlines certain non-financial information that these companies must disclose, ranging from environmental impact reports to social and employee-related matters, human rights, anti-corruption and bribery matters.
The influence of this directive is profound, considering its application to a significant number of companies. The entities in the EU and even those outside the EU whose securities are listed within the EU territory, have to strive hard to meet the compliance requirements laid down by the directive. Their efforts would now involve a broader understanding of their operations and requiring them to disclose an array of non-financial data that spotlights their environmental and social impacts amongst others.
Therefore, companies should start preparing now to get accustomed to the new reporting requirements. Legal counsel and compliance teams should familiarize themselves with the guidelines and requirements of the CSRD, to ensure their disclosure practices align with this new regulatory landscape.