There's more than one way to report your ESG disclosures. As interest in ESG performance has grown, the number of ESG frameworks has risen too.
Here are the key ones to know.
Corporate Sustainability Reporting Directive (CSRD)
- Non-Financial Reporting Directive (NFRD): This requires companies to make a series of disclosures and publish regular reports on their activities' social and environmental impacts.
- The Sustainable Finance Disclosure Regulation (SFDR): aims to provide more transparency on sustainability within the financial markets in a consistent manner to ensure comparability.
- EU Taxonomy Regulation: published in 2020 which established a classification system for environmentally sustainable economic activities. It provides appropriate definitions for companies, investors, and policymakers whose economic activities can be environmentally sustainable.
: aims to improve the flow of sustainability information in the corporate world, making the report more consistent, comparable, and reliable
In April 2021, the EU Commission presented a
new proposal for The Corporate Sustainability Reporting Directive which extends the scope and reporting requirements of the already existing Non-Financial Reporting Directive
– a regulatory framework that mandates sizeable public interest entities to report on their sustainability performance since 2018.
While the NFRD only requires "public interest entities" with more than 500 employees to report on their sustainability performance, the CSRD will require all large companies – meaning companies with more than 250 employees and more than €40M turnover and/or more than €20 Million in total assets – and all listed companies (except micro-enterprises, less than 10 employees or below €20M in turnover) to report on their sustainability.
As soon as put into force, nearly 50,000 companies (15,000 in Germany alone) in the EU will need to follow detailed EU sustainability reporting standards, corresponding to 75% of all EU companies turnover.
Additional to the NFRD Under Directive 2014/95/EU, large companies have to publish information related to:
- Environmental protection
- Social responsibility and treatment of employees
- Respect for human rights
- Anti-corruption and bribery and
- Diversity on company boards
Also, the CSRD is adding additional requirements on:
- Double materiality concept: Sustainability risk (including climate change) affecting the company + companies' impact on society and environment
- Process to select material topics for stakeholders
- More forward looking information, including targets and progress
- Disclose information relating to intangibles (social, human and intellectual capital)
- Reporting in line with Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation
Businesses will have to start reporting on how sustainability risks might affect their performance. The NFR Directive is a leading example of how the landscape of managing and disclosing non-financial risks has changed – and continues to change. The evolution of accountability shows us it is only a matter of time before prominent voluntary initiatives will become mandatory regulations, and as such being ahead of the curve will help businesses mitigate any backlash.