As sustainability has become a growing concern to consumers and stakeholders, demand for reporting sustainability information has grown in recent years. While many companies voluntarily report their sustainability information, some choose not to, and there isn’t much consistency in what is reported between companies. Due to this, the European Union adopted the Non-Financial Reporting Directive (NFRD) back in 2014 [1]. This required certain companies to provide non-financial information with their annual reports, and this information that was required was regarding sustainability, including environmental matters, social and employee issues, anti-bribery and anti-corruption issues, diversity, and respect for human rights [2]. Companies must report risks associated with the following along with what they are doing to prevent the risks from happening [2]. The goal of this legislation is to increase transparency and decrease the likelihood of greenwashing in the EU [2]. The companies that fell under this initiative include public-interest entities and those that had over 500 employees, which totaled out to about 12,000 companies across the EU [2]. In 2018, all 28 EU member states took this to law [2].
Since then, the EU has created another initiative that is stricter when it comes to reporting than the NFRD. On April 21st, 2021, the European Commission proposed the Corporate Sustainability Reporting Directive (CSRD), which adds more companies that have to report along with other areas that have to be included in the report [3]. The CSRD would now include companies that have two of the following: a net turnover of 40 million euros, a balance sheet total of 20 million euros, or have at least 250 employees [4]. This will also apply to non-European companies that are active in the EU market that have a net turnover of more than 150 million euros and have one branch in the EU that has a net turnover of 40 million euros [4]. This now has 49,000 companies reporting on their sustainability initiatives rather than just the 11,600 that the NFRD required to report [4]. The CSRD will be enforced in 4 different stages:
- January of 2024 companies that are already required to report under the NFRD will have to track their 2024 data to report in 2025 [5],
- January of 2025 large companies that don’t comply with the NFRD will have to track their data to report in 2026 [5],
- January of 2026 SMEs and smaller companies will have to begin tracking their data to report in 2027 [5],
- January of 2028 countries that aren’t from the EU will have to begin tracking to report in 2029 [5].
In addition to what the NFRD requires, the CSRD has companies report on sustainability risks and how they impact the company, their process of selecting material topics for stakeholders, information regarding targets and progress on goals, information regarding intangible assets, reporting in line with the Sustainable Finance Disclosure Regulation (SFDR), and how sustainability risks might impact a business’ performance [4]. Unlike the NFRD, this initiative is much less voluntary, and there will be punishments for companies that do not comply [4].
The EU wants to do this so companies are more transparent about their practices to stakeholders and customers. This will overall benefit companies in the EU as making this information public can make them more appealing to investors, stakeholders, and consumers [2].
[1] Corporate Sustainability Reporting Directive (CSRD) explained | The Carbon Trust
[2] What is the Non-Financial Reporting Directive (NFRD)? (greenly.earth)
[3] The Non-Financial Reporting Directive (NFRD): What You Need To Know (datamaran.com)
[4] The Corporate Sustainability Reporting Directive (CSRD) (plana.earth)
[5] The EU’s Sustainability-Reporting Directive: Three Key Questions (forbes.com)