Stockholm (NordSIP) – Late on Friday, 29 April, the European Financial Reporting Advisory Group (EFRAG) announced the release of the first draft of its widely anticipated European Sustainability Reporting Standards. Listed companies across the EU will use the proposed rules to implement mandatory sustainability-related disclosures under the upcoming Corporate Sustainable Reporting Directive (CSRD). The proposal, which will replace the EU’s current sustainability reporting framework, the Non-Financial Reporting Directive (NFRD), is now open for comments until 8 August 2022.
Notably, EFRAG’s new standards require organisations to report sustainability matters on the basis of the double materiality principle, i.e., to disclose both how sustainability matters affect their own performance and position and how they themselves impact the environment and society. “A sustainability matter meets [] the criteria of double materiality if it is material from either the impact perspective or the financial perspective or both perspectives,” states the proposal.
“The EU has shown leadership in creating sustainability standards covering companies’ impacts on people and planet, as well as environmental-related risk information – what the EU calls ‘double materiality’,” comments Paul Simpso, CEO of CDP, the world’s biggest repository of environmental data submitted on a voluntary basis by companies.
Another feature that should make sustainability experts rejoice is the particular attention that CSRD pays to value-chain sustainability factors. The new framework brings us closer to mandatory Scope 3 emissions disclosures, for instance, requiring companies to look closer not just into their own operations but also into upstream purchasing, sold products, goods transportation, travel and even financial investments.
Otherwise, the series of exposure drafts (EDs) released by EFRAG follow the familiar ESG framework. Environment categories include Climate Change, Pollution, Water and marine resources, Biodiversity and Ecosystems, and Resource use and circular economy. Social categories include Own Workforce, Workers in the value chain, Affected communities, and Consumers and end-users. Governance categories include Governance, risk management and internal control and Business conduct.
“With the environmental crisis needing immediate attention, this much-needed strengthening of EU disclosure rules will bring more accountability, a better understanding of risks and opportunities and of the progress against EU and global goals and will raise the bar on what is expected from companies,” says CDP’s CEO. “Corporates are not moving fast enough to ensure what they do align with our planet’s limits. That’s why these standards’ requirement that companies report a wide range of relevant science-based environmental data is so key,” concludes Simpso.
