On 11 December 2019, in its Communication on the European Green Deal, the European Commission announced its intention to review the Non-Financial Reporting Directive (NFRD). The principal aim of the current NFRD is to enable the investment community, consumers, and other stakeholders to evaluate the non-financial performance of large companies, and to encourage those companies to develop a more responsible approach to business.

Under the NFRD Directive (Directive 2014/95/EU), large listed companies, banks and insurance companies with more than 500 employees are required to publish reports on the policies they implement in relation to:

• environmental protection
• social responsibility and treatment of employees
• respect for human rights
• anti-corruption and bribery
• diversity on company boards (in terms of age, gender, educational and professional background).

Users of this information, mainly investors and civil society organisations, are demanding more and better information from companies about their social and environmental performance and impacts. Moreover there is a global trend which sees a wide variety of different organisations and stakeholders calling for a consideration of a new regulatory approach to non-financial reporting.

On 20 February 2020 the European Commission launched a public consultation.

On 25 June 2020, the Commission issued a request for technical advice mandating the European Financial Reporting Advisory Group (EFRAG) to undertake preparatory work for the elaboration of possible EU non-financial reporting standards in a revised NFRD. On 8 March 2021, the ERFRAG published two reports submitted to the European Commission.

On 21 April 2021, the Commission presented its proposal for a Corporate Sustainability Reporting Directive (CSRD), which aims to revise and strengthen the existing rules introduced by the Non-Financial Reporting Directive (NFRD), and to bring - over time - sustainability reporting on a par with financial reporting. Companies will have to report on how sustainability issues affects their business and the impact of their activities on people and the environment. 

The proposal extends the EU's sustainability reporting requirements to all large companies and all listed companies. This means that nearly 50 000 companies in the EU would be asked to follow detailed EU sustainability reporting standards, an increase from the 11 000 companies that are subject to the existing requirements.

The Commission proposes the development of standards for large companies and separate, proportionate 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. That would facilitate a consistent flow of sustainability information through the financial system.

The proposal also aims to simplify the reporting process for companies. Many companies are currently under pressure to use an array of different sustainability reporting standards and frameworks. The proposed EU sustainability reporting standards should be a 'one-stop-shop', providing companies with a single solution that meets the information needs of investors and other stakeholders.

In the European Parliament, the file has been referred to the Committee on Legal Affairs (JURI), and MEP Pascal Durand (Renew, France) is the rapporteur.

The Committee on Economic and Monetary Affairs (ECON), the Committee on Environment, Public Health and Food Safety (ENVI), and the Committee on Employment and Social Affairs (EMPL) have been referred as associated committees, and will produce opinions on the Commission proposals. ECON has appointed MEP Jessica Polfjärd (EPP, Sweden) as rapporteur, ENVI has appointed MEP Lídia Pereira (EPP, Portugal) as rapporteur, EMPL has appointed MEP Kira Marie Peter-Hansen (Greens/EFA, Denmark) as rapporteur.

On 16 November 2021, the rapporteur presented his draft report. On 14 December 2021, amendments were tabled in the JURI Committee.

On 14 February 2022, the AFET Committee has adopted its opinion on the proposal.

On 24 February 2022, the Council adopted unanimously a general approach on the proposed Corporate Sustainability Reporting Directive.

On 23 March, the JURI Committee decision to enter into interinstitutional negotiations has been announced in plenary (Rule 71).

On 4 April, the JURI Committee decision to enter into interinstitutional negotiations was confirmed by plenary (Rule 71).

On 21 June 2022, following the negotiations in the trilogues, Parliament and Council reached a provisional political agreement.

The CSRD will extend the current sustainability reporting requirements in the EU (namely those under the Non-Financial Reporting Directive (NFRD)), to include more companies and topics and to require more detailed disclosures.

On 14 July 2022, the JURI committee approved the text agreed at 1st reading during interinstitutional negotiations.

On 10 November 2022, in its plenary sitting, the European Parliament adopted the agreed text.

On 28 November 2022, the Council adopted the proposal.

On 14 December 2022, the final act has been signed by the President of the European Parliament, and by the President of the Council

On 16 December 2022, the final act has been published in the Official Journal.

The directive will enter into force 20 days after publication. The rules will start applying between 2024 and 2028, as follows:

• from 1 January 2024 for large public-interest companies (with over 500 employees) already subject to the non-financial reporting directive, with reports due in 2025;
• from 1 January 2025 for large companies (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets) not presently subject to the non-financial reporting directive, with reports due in 2026;
• from 1 January 2026 for listed SMEs and other undertakings, with reports due in 2027. SMEs can opt-out until 2028.

References:

• EP Legislative Observatory, Procedure file on Corporate Sustainability Reporting Directive, 2021/0104(COD)
• European Parliament, New social and environmental reporting rules for large companies, Press release, 21 June 2022
• Council, New rules on corporate sustainability reporting: provisional political agreement between the Council and the European Parliament, Press release, 21 June 2022
• European Commission, Proposal for a directive amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting, COM (2021) 189
• European Commission, Impact assessment accompanying the CSRD proposal, SWD(2021) 150
• European Commission, Summary of the impact assessment accompanying the CSRD proposal, SWD(2021) 151
• European Commission, Corporate Sustainability Reporting Directive proposal - Question and Answers
• European Commission, Corporate Sustainability Reporting, website
• European Commission, Non-financial reporting by large companies (update rules), website
• European Financial Reporting Advisory Group, Report: Proposals for a relevant and dynamic EU sustainability reporting standard-setting, 8 March 2021

Further reading:

• European Parliament, EPRS, Non-financial Reporting Directive, Briefing, January 2021

Author: Stefano Spinaci, Members' Research Service, legislative-train@europarl.europa.eu