European Union Corporate Sustainability Reporting Changes: Will They Affect You?

On January 5, 2023, the European Union Council finalized the Corporate Sustainability Reporting Directive (CSRD). This directive will require corporations that meet certain thresholds to provide more detailed reporting on a variety of sustainability categories. The reporting guidelines, or EU Sustainability Reporting Standards (ESRS), are being developed for the EU Commission by the European Financial Reporting Advisory Group (EFRAG).

Who Must Comply with the CSRD?

The CSRD will be phased in beginning January 2024, with ultimate compliance required by January 2028. It is modeled after traditional ESG categories, with mandatory disclosures for environmental, social and human rights, and governance. Compliance with the new directive is dependent on classification criteria. More than 50,000 companies are expected to be affected by this change.

Qualification requirements are fairly detailed. Essentially, all companies with the following exposures must comply with the directive:

• European Union (EU) corporations meeting certain thresholds associated with number of employees and total revenue
• Non-European corporations with net turnover in the EU exceeding €150 million for each of the last two years, AND having at least one large subsidiary on an EU-regulated market OR one branch in the EU with an annual net turnover of €40 million or more

See the complete CSRD for details.

Qualifying companies will be held to a double materiality reporting concept. Part one will require disclosing the company’s impact on various sustainability factors such as climate change, water resources, the circular economy, pollution and biodiversity. Part two will require reporting on how these same sustainability factors could affect the company’s overall operation.

Why the CSRD Matters to Non-Qualifying Companies

If these new reporting requirements impact a company’s trading partners, there is a probability that the company will also be affected. Corporations subject to these new regulations will likely not only be taking inventory of their own sustainability practices but also questioning the practices of their business associates. Be prepared to comment on your own organization’s sustainability plan.

Navigating these new reporting requirements and better identifying an organization’s corporate sustainability practices and risk exposures can be cumbersome. Hylant can provide insight and direction to help you manage this process and appropriately position your organization for success.

The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.