ESG Services

Why we help with ESG Services

On 21 April 2021, the European Commission adopted the proposal of Corporate Social Sustainability Directive (“CSRD”). This directive came-in to update the Non-Financial Reporting Directive (Directive 2014/95/EU, the “NFRD”). in order to enhance transparency and comparability on corporate sustainability reporting in line with the commitments under the European Green Deal.

The proposed directive requires large companies to report on their environmental, social, and governance (ESG) performance.

The CSRD proposes a number of changes to the NFRD, including:

1. Enlarged Reporting Scope

The scope of the NFRD included large public interest entities with more than 500 employees including parent companies of such entities. The CSRD has enlarged the scope of the directive to include all large EU companies and all companies listed on the EU regulated markets (including EU subsidiaries of non-EU parent companies and with the exception of micro-enterprises).
A Large company is defined under the CSRD as entity that, on its balance sheet date, exceeds at least two of the three following criteria:
• Balance sheet total assets of 20 million Euro;
• Net turnover of more than 40 million Euro;
• Average number of employees during the financial year of 250 or more.

 2. Expanded Reporting

The CSRD will require companies to report on a wider range of sustainability and social responsibility topics, including climate change, affected communities, and business conduct. The reporting requirements would be more detailed and standardized than under the NFRD. The CSRD proposes a standardized reporting framework that companies would be required to use to report on their sustainability and social responsibility practices. This framework would be aligned with the Sustainable Finance Disclosure Regulation and the EU Taxonomy Regulation. To ensure uniformity, the sustainability content to be reported is set by EU standards known as European Sustainability Standards (“ESRS”) prepared by the European Financial Reporting Advisory Group (“EFRAG”). Drafts are currently available and will be finalized by Q2 2023.

3. Independent Assurance

In order to enhance the reliability of the sustainability reporting, the CSRD requires a mandatory limited level of assurance on the ESG reporting, the auditor’s report shall be attached to the companies’ reporting.

4. Double materiality approach

The CSRD introduces the double materiality approach. This means that companies shall report on sustainability matters that are in one hand financially material (i.e. a matter that impacts the cash-flows and operations of the company and is relevant to the investors), and in the other hand matters that have a material impact on the people and the environment (i.e. a matter that may have a positive or negative impact on the people and the environment). The materiality is based on the severity and likelihood of the impact).

5. Value Chain reporting

The CSRD requires companies to report on the ESG performance of their supply chain partners. However, as retrieving such information can be complex, an exception is made during the three first years for not being able to retrieve all necessary information.

6. The sustainability reporting shall be in the management report and should be subject to Digital Tagging

The ESG reporting shall be published in the management report of the Company. The CSRD introduced the “Digital Tagging” that requires companies to prepare their reporting in a definite reporting format and digitally tag the information.

Timing of the application of CSRD:

The timing of reporting differs depending on the size of the company:
• Large companies already subject to NFRD: From January 2024 (first reports to be published in 2025);
• All other large Companies as defined by the CSRD: From January 2025 (First reports to be published in 2026);
• Medium sized listed companies: From January 2026 (First reports to be published in 2027. Possibility to opt-out for 2 years);
• Non-EU Companies with EU branches/subsidiaries with (i) a net turnover of at least 40 million Euro in the EU, or (ii) is a large or listed EU subsidiary: From January 2028 (First reports to be published in 2029).