Corporate Sustainability Reporting Directive (CSRD)

EU Parliament adopts the JURI committee report, which clarifies obligations for companies' sustainability reporting, but leaves all SMEs out of the mandatory framework

The European Parliament’s JURI committee has approved its position on the EU Corporate Sustainability Reporting Directive (CSRD) on 15 March 2022. Following this vote, the CSRD proposal will move to the final stage of the legislative process and enter trilogue negotiations between the EU Commission, European Parliament and the Council who adopted its initial position in February. 

The EP Committee position supports many of the principles and measures enshrined in the CSRD proposal but proposes a reduction of the scope of the CSRD.

• Listed SMEs are taken out of the scope of mandatory reporting: the European Parliament has only proposed a new review clause (Article 5a) including a request for the EU Commission to assess the “possible extension” of the scope to listed SMEs. 

• Additionally, a new Article (7a) requests the EU Commission to identify and develop a list of high-risk sectors. However, the inclusion of SMEs in such high-risk sectors (whether listed or not) remains tied to the review clause (and subject to an assessment to be delivered before the end of 2026).This creates a clear risk of a funding gap at a critical time for the EU economy. Leaving listed SMEs out of scope poses investor protection and financial stability concerns. From the investor perspective, sustainability-related information is essential to assess a risk profile of companies they invest in, whether they are large, medium-sized or small. Co-legislators will most surely address these issues during the trilogue negotiations to ensure SMEs are adequately incorporated in the legal framework.

Furthermore, other amendments from the European Parliament include notable improvements, specifically: 

• Further specification of the disclosure of sustainability targets and transition plans in line with the Paris climate agreement, additional guidance for the development of mandatory EU standards on climate matters, as well as the alignment of due diligence related disclosures with the recent proposal for the EU Corporate Sustainability Due Diligence Directive and the prioritisation of specific high-risk industries for the development of sector-specific standards. 

Ensuring that companies’ sustainability reporting focuses on the right data is critical for addressing systemic sustainability issues, in particular climate change and human rights abuses in European companies’ value chains. It is also key to enabling a sustainable finance system to succeed, and businesses’ ability to make informed decisions and successfully adapt to a fast-changing world. 

• Removal of the exemption for large companies that are subsidiaries of groups to report sustainability data. The initial proposal from the EU Commission included a full exemption for subsidiaries, which would undermine the level playing field and create a major gap in transparency, especially in highly concentrated sectors or in smaller EU Member States where the market is mostly dominated by large subsidiaries of foreign groups. The EU Parliament’s position will enable key stakeholders, in particular investors, to get access to information on parent companies as well as individual subsidiaries in their portfolios and contribute to mobilise much needed resources for the transformation of national economies. 

On timing, the European Parliament is proposing a one-year delay compared to the original proposal, therefore asking all large companies to disclose according to the new rules and standards as of 2024 (reports published in 2025).

To know more about CSRD and its impact on your company, your clients and the sector in general, please register for the FEBIS webinar on 29 March 2022 at 12 pm CET.