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    Commission Proposes Corporate Sustainability Reporting Directive

    Stockholm (NordSIP) – On the same day that the European Commission announced it had adopted the first official delegated act for the EU Taxonomy, the EU executive also proposed the creation of a Corporate Sustainability Reporting Directive (CSRD).

    According to the Commission, the proposal revises the existing rules introduced by Non-Financial Reporting Directive (NFRD) and aims to make the flow of corporate sustainability information more consistent. The proposal attempts to simplify the reporting process for companies by providing a “one-stop-shop” solution that meets the information needs of investors and other stakeholders.

    Expanding the Coverage

    The new proposal extends the EU’s sustainability reporting requirements to all large companies and all listed companies. This means the number of companies reporting sustainability standards will increase from 11,000 to nearly 50,000. The proposal also suggests the separate development of standards for SMEs, which non-listed SMEs can use voluntarily.

    “Overall, the proposal aims to ensure that companies report reliable and comparable sustainability information needed by investors and other stakeholders. It will ensure a consistent flow of sustainability information through the financial system. Companies will have to report on how sustainability issues, such as climate change, affects their business and the impact of their activities on people and the environment,” the announcement says.

    The Positive

    WWF, the Future Fit Foundation, ShareAction, OXFAM and GermanWatch, among others welcomed the new proposal.

    They applauded the extension of the scope of the directive to all large companies, the development of mandatory European sustainability standard reports. The clarification of the main reporting areas and the categories of information that companies should disclose is specified in greater detail was also well received.

    The NGOs were encouraged that “the proposal provides a clear mandate to report on plans to ensure the compatibility of company business models and strategies with the transition towards a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement.”

    Concerns

    However, the same NGOs did express some concerns, particularly regarding the fact that private companies in ‘high risk’ sectors such as mining are not obliged to report on the sustainability of their business. Another concern was triggered by the fact that listed SMEs will be exempt for the first three years of the new law.

    The NGOs also noted that the “proposal fails to specify the essential aspects that EU standards need to address in particular with regard to reporting on human rights, including disclosure of salient human rights issues, key elements for supply chains disclosures, and quality criteria for KPIs”

    However, to guarantee that target setting is relevant and connected to the company’s impacts and risks, the NGOs warned of the necessity to “specify that such targets must be linked to the outcomes of the company’s double materiality determination.”

    Image by Mariann Szőke from Pixabay

    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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