EU policymakers strengthen rules for companies’ sustainability disclosures with mandatory ESG standards

EU policymakers strengthen rules for companies’ sustainability disclosures with mandatory ESG standards

EU policymakers strengthen rules for companies’ sustainability disclosures with mandatory ESG standards 3768 2522 ECIIA

EU policymakers strengthen rules for companies’ sustainability disclosures with mandatory ESG standards but delay their implementation. The agreement reached between the European Parliament and Council in trilogues was rubber-stamped by Member States.

What are the key changes & missed opportunities?

1. The scope of the legislation is expanded to all large listed and non-listed companies with more than 250 employees.

  • Listed SMEs were included in the initial proposal to report in a mandatory way as of 2026 following simplified standards. The final text allows them to opt-out until 2028.

2. Companies’ reporting obligations have been specified, namely for the disclosure of:

  • Transition plans to reach climate neutrality by 2050, including actions, investment plans and exposure to fossil fuels;
  • Time-bound targets related to sustainability issues and companies’ progress to achieve them (including GHG emission reduction targets); 
  • Sustainability due diligence information, i.e. transparency on the process and adverse impacts identified in the company’s value chain, and actions are taken to address such impacts.

3. Mandate to develop and adopt EU Sustainability Reporting Standards based on double materiality (i.e. the disclosure of companies’ impacts on the planet and people as well as risks and opportunities to the company arising from sustainability matters). 

  • Pursuant to the CSRD, EU standards will include quantitative and qualitative data, and cover both retrospective and forward-looking information; 
  • Draft EU standards (sector agnostic) have been published and are open for public consultation until August. These have been designed by an expert group, part of the EFRAG new Sustainability Reporting Pillar and they will continue with technical proposals for sector-specific standards. 

4. The information companies provide on their impact on the climate or human rights will be independently audited and certified  (limited assurance) and the target is a reasonable assurance in the short term. Companies will be able to choose the same auditor for sustainability assurance as for financial statements.

5. The agreement delays application to 2024 for those companies already covered by existing legislation (the EU Non-Financial Reporting Directive) and 2025 for other large listed and non-listed companies (above 250 employees).

  • While the initial proposal was set to be integrated into national law by the end of 2023, the deal now includes an 18-month transposition period. It is imperative that the Member States provide clarity to companies by making the necessary changes before January 2024. 

6. An assessment of the implementation of the Directive and adoption of standards by SMEs is requested of the European Commission before 2028.

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