The approval of the new Directive (EU) 2022/2464 on corporate sustainability reporting, CSRD, is a determined step by the European Commission as part of the European Green Deal and the so-called Sustainable Finance Agenda to complete and improve existing regulations, amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU.
The directive, published in the Official Journal of the European Union on 16 December, will enter into force 20 days after its publication, with member states having up to 18 months to implement it. This implementation will be applied gradually for unaffected companies, incorporating standards for listed SMEs and Guidelines for non-listed SMEs in the final stages of application. Specifically, the step is taken in such transcendental aspects as the scope, the homogeneity of the information reported by companies and its reliability. It is essential to highlight the verifying nature of the regulation and the monitoring through indicators that it will entail based on the information that companies must present by the technical work developed by the European Financial Reporting Advisory Group (EFRAG) and the final version of the standards (ESRS) by the European Commission itself. It is important to notice that these indicators and standards pursue information on sustainability, such as environmental, social, human rights and governance factors, and that it is also an obligation to report on issues related to dual materiality, i.e. to report on the inverse relationship of the impact on their business model of sustainability in the form of climate change or human rights. If we were to choose governance and business conduct indicators by way of example, these could be reduced to:
- % of members of bodies according to gender, age, etc.
- The number of meetings of the bodies and attendance rate.
- The number of anti-corruption and anti-bribery training programmes.
- The number of open proceedings related to corruption, bribery, etc.
Based on the above and following the reporting according to the Taxonomy and SFDR regulation, reliable and comparable information will follow two cross-cutting standards such as:
- ESRS1 of General Principles, among which we find:
- Principle 1: Reporting based on sustainability reporting standards.
- Principle 2: Application of the concepts defined in the CSRD (material impact and immaterial impact).
- Principle 3: Reporting on sustainability implementation.
- Principle 4: Basis for preparing and presenting sustainability information.
- Principle 5: Relationships to other parts of corporate reporting.
- Principle 6: Structure of sustainability disclosures.
- ESRS2 of Requirements among which we find:
- General reporting requirements.
- Business strategy disclosure requirements.
- Governance disclosure requirements.
- Information requirements on the analysis of the materiality of impacts and their risks.
In addition, the so-called thematic standards are set out in three fundamental aspects, namely:
- Environment (following the Global Reporting Initiative (GRI, where each standard incorporates mandatory and optional indicators):
- ESRS E1 – Climate Change.
- ESRS E2 – Pollution.
- ESRS E3 – Water and marine resources.
- ESRS E4 – Biodiversity and ecosystems.
- ESRS E5 – Resource use and circular economy.
- Social (an example of this would be the importance of reporting to consumers and end-users on privacy):
- ESRS S1 – People employed by the company.
- ESRS S2 – People are working in the value chain.
- ESRS S3 – Affected communities.
- ESRS S4 – Consumers and end-users.
- Governance (relevant governance aspects):
- ESRS G1 – Governance, risk management and internal control.
- ESRS G2 – Conduct of Business.
The directive is aligned with the first draft of the ISSB issued by the IFRS and the one developed here by EFRAG, the two most important projects on sustainability standards, which is why those concerned about progress in sustainability should be more than grateful. Moreover, they will undoubtedly serve to advance initiatives such as the one in the United States by the Securities Exchange Commission, which is still in its early stages.
