By Kelsey McGillis
Law Student Editor
The European Green Deal, a landmark initiative approved by the EU Commission in 2020, is an ongoing commitment by the EU toward environmental sustainability, with its ultimate objective being net-zero European emissions by 2050. Its policies aim to position the EU as a global leader in sustainable practices, emphasizing green technologies, circular business models, energy efficiency, and sustainable finance practices.
Within this larger policy framework, the EU mandates all large companies (generally, having 250 employees or more, or worth at least €20 million), and companies specifically listed on the EU regulated market by the Commission, to routinely disclose the social and environmental impacts of their activities, and the associated sustainability risks they face. The pre-existing reporting framework, instituted in 2017, is known as the Non-Financial Reporting Directive (NFRD). The NFRD is being expanded by the introduction of the Corporate Sustainability Reporting Directive (“CSRD”), in an effort to strengthen corporate transparency and accountability in addressing environmental, social, and governance issues.
Implemented on January 5th, 2023, the CSRD mandates that companies falling under its purview comply with the specified rules throughout the 2024 financial year, and reports are scheduled for publication in 2025. Until the CSRD is fully enforced, companies remain subject to the existing NFRD rules, necessitating disclosure of various factors including environmental impact, employee treatment, human rights compliance, anti-corruption and diversity. Currently covering around 11,700 companies, the CSRD will require around 49,000 European companies to submit reports.
One of the pivotal changes included in the CSRD is its expanded scope. While the NFRD applies to large public-interest companies with over 500 employees, the CSRD expands reporting requirements to include listed Small and Medium-Sized Enterprises (SMEs). The addition of listed SMEs ensures that even smaller publicly traded entities actively contribute to the overarching goals of environmental and social disclosure. In addition to the increased company coverage, the CSRD standardizes the reporting process with the introduction of European Sustainability Reporting Standards (ESRS). Developed by the independent organization, the European Financial Reporting Advisory Group, the ESRS creates a structured, uniform system for reporting sustainability-related information.
Additionally, the CSRD mandates the development and implementation of a digital taxonomy for sustainability information. This aims to enhance interorganizational transparency and consistency. Assurance on disclosed sustainability information is mandated by the CSRD, ensuring the reliability of the data provided.
The implementation of CSRD has notable implications for non-EU companies as well. Business organizations with EU subsidiaries or other operations within the EU will need to comply with the requirements as well. Moreover, international companies that are part of the supply chain for EU-based businesses may also be influenced indirectly by the CSRD, because EU companies may seek more comprehensive sustainability information from their global partners to meet their reporting obligations.