Sustainability reporting has become an increasingly important aspect of corporate accountability and transparency. In response, the European Union (EU) has introduced regulations aimed at improving sustainability reporting practices across the region.
This blog post provides an overview of the sustainability reporting regulations for large, medium, and small enterprises in the EU, both the current state and the future implications.
Current state of sustainability reporting for large and medium-sized enterprises in the EU
Large and listed companies in the EU are subject to mandatory sustainability reporting requirements under the Non-Financial Reporting Directive (NFRD). The directive requires companies to report on their environmental impact, social responsibility, and corporate governance. The EU Corporate Sustainability Reporting Directive (CSRD) is a new directive that amends the NFRD and extends the reporting requirements to include sustainability performance targets, non-financial risks, and due diligence.
However, medium-sized enterprises in the EU are not currently subject to mandatory sustainability reporting requirements, but they can voluntarily report on their sustainability performance.
Future implications for sustainability reporting for small and medium-sized enterprises in the EU
The Corporate Sustainability Reporting Directive 2 (CSRD/2) is currently under discussion in the EU and aims to extend sustainability reporting requirements to a wider range of companies, including small and medium-sized enterprises (SMEs). Under the proposed directive, large companies, listed companies, and SMEs that meet certain criteria will be required to report on their sustainability performance, risks, and impacts.
Obligations under the CSRD/2 The exact obligations that the CSRD/2 will impose on SMEs are still being determined during the legislative process. However, it is expected that the reporting requirements for SMEs will be proportionate to their size, nature, and complexity, making the reporting obligations manageable while still providing stakeholders with meaningful information about their sustainability practices.
Sustainability reporting is becoming an increasingly important aspect of corporate accountability and transparency. While large and listed companies in the EU are subject to mandatory sustainability reporting requirements under the NFRD and the CSRD, medium-sized enterprises can voluntarily report on their sustainability practices.
The proposed CSRD/2 aims to extend reporting requirements to SMEs in the EU and will likely provide frameworks and guidance for SMEs to report on their sustainability practices. The final text of the CSRD/2 is still under negotiation, but it is expected to contribute to the harmonization of sustainability reporting standards across the EU and promote sustainable development in the region.
Examples of the types of data that companies must publish within the framework of the EU Corporate Sustainability Reporting Directive (CSRD):
- Sustainability performance targets: Companies must set sustainability targets and report on progress towards meeting those targets.
- Non-financial risks: Companies must disclose information about their exposure to non-financial risks, such as environmental, social, and governance risks.
- Due diligence: Companies must report on their due diligence processes in relation to environmental, social, and governance risks.
- Environmental impact: Companies must disclose information about their environmental impact, such as greenhouse gas emissions, water use, and waste management.
- Social responsibility: Companies must report on their social responsibility practices, such as labor rights, human rights, and community engagement.
- Corporate governance: Companies must disclose information about their corporate governance practices, such as board composition, executive pay, and stakeholder engagement.
- Climate-related information: Companies must disclose information about the financial impact of climate-related risks and opportunities.
- Gender diversity: Listed companies with more than 250 employees must disclose information on gender diversity on their board of directors and in senior management.
Overall, the CSRD aims to provide stakeholders with comprehensive and comparable information about companies’ sustainability practices, risks, and impacts, to promote transparency and accountability in corporate reporting.