EU demands companies up their game on sustainability reporting

30 April, 2021

The European Commission (EC) is making stringent new demands on companies’ reporting of their impact on the environment, as it looks to drive investors’ money towards the greenest firms.

A proposed Corporate Sustainability Reporting Directive (CSRD) aims to improve the flow of sustainability information in the corporate world. It will make sustainability reporting by companies more consistent, so that financial firms, investors and the broader public can use comparable and reliable sustainability information.

Access to consistent and comparable data is often cited by investors as a significant hurdle for their sustainable investment strategies.

“By enabling investors to re-orient investments towards more sustainable technologies and businesses, the measures will be instrumental in making Europe climate neutral by 2050,” said the EC, the executive branch of the European Union (EU).  

The proposal aims to create a set of rules that will – over time – bring sustainability reporting on a par with financial reporting. It will extend 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 need to follow detailed EU sustainability reporting standards, an increase from the 11,000 companies that are subject to existing requirements.

Overall, the proposal aims to ensure that companies report reliable and comparable sustainability information needed by investors and other stakeholders. Companies will have to report on how sustainability issues, such as climate change, affects their business and the impact of their activities on people and the environment.

The CSRD forms part of a larger package of reporting measures, including formal legislation relating to the sustainable finance taxonomy, alongside six amending Delegated Acts related to fiduciary duties, investment and insurance advice. The EC said these would ensure that financial firms such as advisers, asset managers or insurers would include sustainability considerations in their procedures and advice to clients.

Valdis Dombrovskis, the EU’s executive vice-president for an Economy that Works for People, said: “We are taking a leap forward with the first-ever climate taxonomy which will help companies and investors to know whether their investments and activities are really green.”

Mairead McGuinness, EU commissioner responsible for financial services, financial stability and the Capital Markets Union, added: “We need all companies to play their part, both those already advanced in greening their activities and those who need to do more to achieve sustainability. Today’s new rules are a game changer in finance.”