The European Union (EU) has implemented new rules to enhance corporate sustainability reporting. The Corporate Sustainability Reporting Directive (CSRD) came into effect on January 5, 2023, and applies to large and listed companies. The directive expands the number of companies required to report on social and environmental information, totalling approximately 50,000 companies.

The primary requirement of the CSRD is that companies falling under its purview must incorporate a distinct section in their annual financial statements, known as the management report, to report on various aspects related to environmental, social, and governance (ESG) issues from the preceding fiscal year. This dedicated section in the management report is expected to be referred to as a “sustainability report.” The new rules will also reduce reporting costs for companies in the long run by standardizing the information provided. Additionally, the CSRD introduces mandatory audits of sustainability information and facilitates the digitalization of sustainability reporting.

By disclosing risks, opportunities, and the impact of their activities on people and the environment, companies contribute to the transparency and accountability which will enable stakeholders to assess investment risks associated with climate change and other sustainability issues. The first reports under the CSRD will be published in 2025, covering the 2024 financial year.

Companies subject to the CSRD will report according to the European Sustainability Reporting Standards (ESRS), which will be developed by the independent body EFRAG (formerly known as the European Financial Reporting Advisory Group). These standards will align with EU policies while contributing to international standardization initiatives. The first set of standards is expected to be adopted by the European Commission in mid-2023.

Overall, the implementation of the CSRD and the existing NFRD highlights the EU’s commitment to advancing corporate sustainability reporting, promoting transparency, and enabling stakeholders to make informed decisions regarding sustainable investments.