On 5 January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force, which modernises and strengthens the social and environmental reporting standards to be communicated by companies. CSRD extends the scope of these rules to a wider set of large listed companies and SMEs, totalling approximately 50,000 companies.
The new rules ensure that investors and other stakeholders have access to the information necessary to assess investment risks arising from climate change and other sustainability issues. They also foster a culture of transparency regarding the impact of companies on people and the environment. In the long term, harmonisation of information is expected to reduce reporting costs for companies.
Companies subject to CSRD must report in accordance with the European Sustainability Information Standards (ESRS). These standards are developed by EFRAG (European Financial Reporting Advisory Group), an independent body bringing together various stakeholders. The standards will be aligned with EU policies and contribute to international standardisation initiatives. The Commission is expected to adopt the first set of rules in mid-2023, building on the draft standards published by EFRAG in November 2022.
In addition, CSRD establishes an obligation for companies to conduct an audit of sustainability information that they report and promotes the digitalisation of sustainability information.
It is worth mentioning that the rules introduced by the Non-Financial Reporting Directive (NFRD) remain in force until companies have to apply the new CSRD rules. The NFRD requires large public interest companies to publish information related to environmental issues, social affairs and employee treatment, respect for human rights, fight against corruption and bribery, and diversity on boards of directors. These rules apply to around 11.700 large companies and groups across the EU, including listed companies, banks, insurance companies and other entities designated as public interest entities by national authorities.
The new Directive extends the scope to include SMEs that have issued securities on official secondary markets in any Member State, with the exception of micro-enterprises. More detailed regulations are also laid down on the content of the sustainability report, to be drawn up in accordance with the European Sustainability Information Standards developed by EFRAG.
In addition, the management report, including the sustainability report, shall be required to be drawn up in electronic format and labelled in accordance with the Taxonomy Regulation (EU) 2020/852. The law will also regulate aspects related to the verification of sustainability information, including the verification regime, the content of the verification report, the applicable regulations and the supervision of verifiers.
In Spain, for its part, the Ministry of Economic Affairs and Digital Transformation has launched a prior public consultation on the Preliminary Draft Law on Sustainability Information. This draft law aims to adapt the Spanish legal system to the provisions introduced by Directive (EU) 2022/2464, which seeks to improve the quality, comparability and reliability of sustainability information published by companies.
The preliminary draft includes national options and alternatives for legislative policy in the transposition of the Directive. Some of these options include the protection of information that could seriously harm the business position of the company, the language of submission of the consolidated sustainability report of parent companies not domiciled in the EU, the publication of the management report free of charge on the company’s website, information on the net turnover generated in Spain and in the Union by third-country companies, among others.