Investor groups have welcomed a deal being struck on EU sustainability reporting rules for corporates, although German fund manager trade group BVI noted that “a drop of bitterness” was that the obligations will apply later than planned.
On Tuesday evening negotiators for the European Parliament and EU governments reached a provisional agreement on the Corporate Sustainability Reporting Directive (CSRD), a proposal for which the European Commission had published some 14 months ago.
It will require companies to report on their alignment to the EU taxonomy and on their negative impacts on sustainability issues – called Principal Adverse Impacts under the EU sustainable finance disclosures regulation (SFDR).
The planned rules also require companies to disclose their plans to reach climate neutrality by 2050, and confirm EFRAG in its role as developer of the standards for reporting.
“This is a landmark in the development of company reporting, a significant step forward in the area of disclosures, covering many sectors of the economy,” said Mairead McGuinness, EU Commissioner for financial services and the Capital Markets Union. “Sustainability reporting will now be on an equal footing with financial reporting.”
At PensionsEurope in Brussels, policy adviser Anastasios Pavlos said the pension funds industry welcomed the trilogue agreement.
“As investors, pension funds are users of the data which will be required by companies under the legislative proposal for a CSRD,” he said. “Pension funds will shortly be better informed about the impact of business on human rights and the environment.”
“[It] is essential to support a coherent implementation of the EU regulatory framework on sustainable finance”
Victor van Hoorn, executive director of Eurosif
Victor van Hoorn, outgoing executive director of Eurosif, the sustainable investment industry association, congratulated the EU co-legislators for finalising what he described as a “major piece of legislation”.
“[It] is essential to bring more transparency in the sustainable investing industry, support a coherent implementation of the EU regulatory framework on sustainable finance, and ultimately improve the availability and quality of ESG data available to investors,” he said.
Eurosif had, together with the Principles for Responsible Investment, recently urged the EU institutions to ensure that the CSRD would mandate transition plans for corporates.
No time to waste
The next steps are for the Parliament and Council to formally approve the agreement before it is published in the EU Official Journal. It will enter into force 20 days after that and its provisions will have to be integrated into member states’ national laws after 18 months.
The centrepiece of the CSRD are the reporting standards being developed by EFRAG, which is consulting on exposure drafts until 8 August.
Eurosif said a “swift and efficient finalisation of the standard-setting process is now of the essence to ensure that the CSRD is properly implemented and lives up to the EU sustainability objectives”. PensionsEurope’s Pavlos said the association was closely monitoring EFRAG’s work on the reporting standards and intended to participate actively in the process.
A spokesperson for the BVI said the agreement on the CSRD was “an important milestone” but expressed disappointment that the first reports under the CSRD were now expected for 2025 at the earliest.
“The EU legislators should use the delay to align the CSRD and the requirements of the planned European Single Access Point,” the spokesperson said. “The sustainability reports of the companies should be made available in a machine-readable format via the single access point right from the start.”
According to the Commission’s proposal for the CSRD,, reporting was originally supposed to cover financial year 2023, which means first reports were originally supposed to be published in 2024.
SMEs, audit
One of the key CSRD negotiation points was the treatment of SMEs. Under the deal that was reached this week only listed SMEs will be in scope of the Directive, with the possibility of an opt-out until 2028.
Another point of discussion was the audit arrangements. This week’s agreement stipulates that the information companies provide on their impact on the climate or human rights will be independently audited and certified, and that sustainability and financial reports must not be audited separately.
“The European extra-financial audit market will be standardised, much more rigorous and transparent,” said Pascal Durand, an MEP for the Renew Europe group who led the negotiations on the CSRD for the European Parliament.
“Parliament succeeded in securing an opening of the audit market by member states in order to make room for new certified players to become major players and not just leave it in the hands of the financial auditors, notably the big four.”
Another key point is that under the planned rules, non-EU companies with substantial activity in the EU market (€150m in annual turnover in the EU) will have to follow equivalent reporting rules.
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