EU adopts Corporate Sustainability Reporting Directive (CSRD)
The EU wants to make Europe the first climate-neutral continent by the middle of the century. To this end, the EU plans that in future undertakings not only report on turnover, profit and loss, but also publicly address issues of climate protection and human rights on an equal footing. Therefore, on 21 April 2021, the EU Commission presented a proposal for a on Corporate Sustainability Reporting Directive (hereinafter: “CSRD”) as part of the European Green Deal and the Agenda for Sustainable Finance. According to the EU Commission, the proposal aimed to improve the flow of information on sustainability reporting by undertakings. Furthermore, it shall aim to increase the coherence of undertakings’ sustainability reporting and to ensure that comparable and reliable information on sustainability is made available to financial undertakings, investors and the wider public.
After the European Parliament and the Council of the EU already reached a political agreement on the CSRD in June 2022 the final CSRD was officially adopted on 28 November 2022. Thus, CSRD amends Regulation (EU) 537/2014 as well as Directives 2004/109/EC, 2006/43/EC and 2013/34/EU as regards corporate sustainability reporting. This means that undertakings operating in the EU will soon be obliged to publish detailed information on sustainability aspects. Thus, CSRD will require more undertakings to provide comprehensive information. While about 11’000 companies have been affected so far, there will soon be almost 50’000. This shall increase the accountability of undertakings, prevent diverging sustainability standards and facilitate the transition to a sustainable economy, according to the Council’s press release. In practice, this means that undertakings will have to report on how their business model affects the sustainability of the undertaking and how external sustainability factors (e.g. climate change, environmental rights, social rights, human rights and governance factors) influence their activities. This should better enable investors and other stakeholders to make informed decisions on sustainability issues in the future.
The CSRD introduces detailed reporting requirements, with application in four phases: i) Undertakings already in scope of the Non-Financial and Diversity Disclosure Directive 2014/95/EU will have to report on the 2024 financial year in 2025; ii) large undertakings (i.e. at least 250 employees, EUR 40 mio. annual turnover and EUR 20 mio. balance sheet total) that are not currently subject to the Non-Financial Disclosure Directive will be required to report on the 2025 financial year in 2026. These undertakings are also responsible for assessing the information relating to their subsidiaries; iii) listed SMEs, small and non-complex credit institutions and captive insurance companies will have to report on the 2026 financial year in 2027; iv) undertakings from third countries with a net turnover of more than EUR 150 mio. in the EU will have to report in 2029 on the financial year 2028 if they have at least one subsidiary or branch in the EU. Regardless of their size, however, many smaller Swiss undertakings are also likely to be indirectly affected as suppliers to EU companies. It cannot therefore be excluded that Swiss undertakings will also be covered by these reporting duties. Thus, reporting obligations of the CSRD will progressively come into force between 2024 and 2028.
What specifically must be reported on, however, is still unclear. The European Financial Reporting Advisory Group (EFRAG) will therefore be competent to prepare draft European standards. In April 2022, EFRAG already published a first version of the “European Sustainability Reporting Standards“. After the publication of the final version, the EU Commission will adopt the final standard requirements as a delegated EU act after consultations with the EU Member States and several EU institutions.
The CSRD will overhaul the current sustainability reporting landscape for all multinational companies with significant activities in the EU, including those headquartered outside the EU. Although the reporting obligations of the CSRD will not be immediately applicable, given the breadth of the reporting requirements, all multinational companies with significant activities in the EU should start planning now as companies will be required to report qualitative and quantitative information across a range of environmental, social, and governance (ESG) issues. As a first step, companies should determine to what extent they will be subject to the requirements of the CSRD. This will then enable them to prepare an optimal reporting strategy, ensuring compliance with these new obligations. Other considerations include ensuring that companies have clear baseline data against which they can monitor progress, that they have adequate systems put in place to measure the necessary data and that there are appropriate resources and a robust governance framework in place to enable meaningful reporting across the areas and geographies that may be required. Since the CSRD is part of a wave of new EU legislative initiatives transforming the ESG sphere from a mainly voluntary framework to compulsory requirements, companies should strive to adopt a holistic approach to compliance with EU ESG legislation, including but not limited to the CSRD, as this will be significantly more efficient and impactful, helping them achieve greater business sustainability and lowering compliance risks in a cost-effective way.
Although the CSRD will in particular affect Swiss undertakings that are active in the EU, other Swiss companies could also be subject to such disclosure obligations in the future since the Swiss Federal Council plans a (partial) implementation of the new EU requirements. Since the Federal Council now knows how the EU acts, it might now decide whether Switzerland wants to make any adjustments in this area, as Federal Councilor Karin Keller-Sutter told the NZZ. It is to be expected that the Federal Council will therefore decide by the end of the year whether to commission the Swiss Justice Department with a legislative project and to what extent it wants to adopt the CSRD.
These are the upcoming dates for our Annual General Meetings:
Thursday, 24 March 2022
Thursday, 23 March 2023