Proposal from European Commission to strengthen corporate sustainability reporting
By Anne Adrain Head of Sustainability and Reporting
23 April 2021
Anne Adrain summarises the proposal issued by the European Commission to introduce greater consistency in sustainability reporting.
Introduction
The European Commission (the Commission) has issued a proposal to revise the Non-financial Reporting Directive (NFRD) with a Corporate Sustainability Reporting Directive (CSRD) as a means of strengthening sustainability reporting.
The proposal is part of a package of measures aimed at directing investment towards more sustainable activities across the European Union.
The proposed CSRD will strengthen the existing rules introduced by the NFRD. It aims to create a framework set of rules that, in time, bring sustainability reporting on a par with financial reporting.
Expanded scope
The scope of the CSRD will be expanded to extend the EU's sustainability reporting requirements to all large companies and all listed companies. This means that nearly 50,000 companies in the EU will now need to follow detailed EU sustainability reporting standards, an increase from the 11,000 companies that are subject to the existing requirements.
SME perspective
The Commission also proposes the development of standards for large companies and separate, proportionate standards for SMEs, which non-listed SMEs can use voluntarily.
Assurance
The proposal also requires companies within the scope to seek assurance over the sustainability information reported. It is envisaged that this will initially take the form of limited assurance but includes an option to move towards a reasonable assurance requirement at a later date.
Greater harmonisation in sustainability reporting
The proposal will also simplify the reporting process for companies. Many companies are currently under pressure to use an array of different sustainability reporting standards and frameworks. The proposed EU sustainability reporting standards should be a “one-stop-shop”, providing companies with a single solution that meets the information needs of investors and other stakeholders.
Conclusion
Overall, the proposal aims to ensure that companies report reliable and comparable sustainability information needed by investors and other stakeholders on how sustainability issues, such as climate change, affect their business and the impact of their activities on people and the environment. This clarifies the requirement for companies to apply the double materiality perspective in the information they report.
ICAS welcomes this move by the Commission as part of its ambition for greater comparability and consistency in sustainability reporting.