ESG advisory committee comments on CSRD Action
January 23, 2023
The article in Compliance Week outlines how the European Union is set to shake up corporate reporting on environmental, social, and governance (ESG) goals by introducing new regulations. Companies are being urged to use 2023 to prepare for these changes and stakeholders’ expectations.
Regulators in the EU have been increasingly vocal about the need for companies to act more sustainably and report their actions and progress in achieving ESG goals in a more meaningful and transparent manner. Last month, the EU agreed to pass legislation to do just that.
The Corporate Sustainability Reporting Directive (CSRD) will introduce more detailed reporting requirements for large and listed companies on non-financial areas such as environmental impacts, social rights, human rights, and corporate governance. The directive will ensure that sustainability information will sit alongside financial information and be audited, which means that the initial compliance cost for companies could be significant as the amount of data that needs to be collected will likely increase, along with the number of people involved in the integrated reporting process.
The CSRD will apply to large companies already covered by the EU’s non-financial reporting directive from 2025 and other companies incrementally year-on-year through 2029, depending on their size and/or revenues. For the 2025 financial year, companies with a net turnover of 40 million euros (U.S. $42.5 million) or more, at least €20 million (U.S. $21.2 million) in assets, and 250-plus employees will need to report. Around 50,000 organizations in the European Union or with EU-based subsidiaries will need to comply.
In a Nov. 9 speech, Mairead McGuinness, European commissioner for financial stability, financial services, and the capital markets union, said, “For the first time …we are putting sustainability reporting on an equal footing with financial reporting.” She added that the final text of the CSRD provides a good basis for alignment with the EU’s proposed Corporate Sustainability Due Diligence Directive, which is currently being negotiated between the European Commission, European Parliament, and the European Council and aims to further improve long-term corporate governance.
On Nov. 23, the European Financial Reporting Advisory Group, which provides technical advice to the European Commission, submitted its first draft of CSRD standards, which the commission must review/amend before making them available for public consultation in the spring. Under the 12 standards, companies would be required to publish comprehensive and comparable information about their sustainability, from their environmental impact regarding pollution, climate change, and biodiversity to workers’ rights, communities affected by their operations, and the impact on customers.
Stuart Brown, Kreston Global ESG committee member was invited to comment, stating he felt that businesses should not feel overwhelmed by the new compliance directive, but see it as an opportunity to assess their own ESG risks.
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