EU Finance Podcast: Episode 13 - The one about sustainability reporting

Summary

The EU Finance podcast explores the Corporate Sustainability Reporting Directive (CSRD), which aims to modernize and strengthen sustainability reporting standards for companies. The directive expands reporting requirements to include a broader range of companies and introduces mandatory European sustainability reporting standards. Expert Thomas Dodd discusses the benefits for financial markets, stakeholders, and companies themselves, highlighting the directive's role in combating greenwashing and supporting a sustainable economy transition.

Takeaways

• 🌳 The EU's Corporate Sustainability Reporting Directive (CSRD) aims to modernize and strengthen the rules for social and environmental information that companies must report, expanding the scope to include a broader set of large companies and listed SMEs.
• 📈 The introduction of the CSRD emphasizes three main changes: an increase in the number of companies required to report, the introduction of mandatory assurance audits for reported information, and the requirement for companies to report according to new mandatory European Sustainability Reporting Standards (ESRs).
• 💼 The directive primarily benefits financial markets and investors by providing better sustainability information, which is crucial for financing a sustainable economy and understanding investment risks related to environmental impacts.
• 🌐 The CSRD also aims to meet the information needs of other stakeholders, including civil society, trade unions, public institutions, and media, by promoting transparency and accountability for companies' impacts on people and the environment.
• 🏢 Companies themselves are another key beneficiary, as the reporting requirements are intended to help them manage and oversee their sustainability performance, ultimately contributing to their competitiveness and resilience in the 21st century.
• 📊 The CSRD's implementation timeline varies by company type, with large listed companies and financial institutions starting to report in 2025, followed by large non-listed companies in 2026, and listed SMEs in 2027, with an optional two-year delay.
• 📘 Non-EU companies generating over €150 million in turnover on the EU market and having a significant presence in the EU will also be subject to reporting requirements by 2029 for the financial year 2028.
• 🔍 The directive is designed to combat greenwashing by providing clear and reliable sustainability information, which is essential for maintaining investor and public confidence in sustainable finance and companies' transition efforts.
• 🛠️ SMEs, while not legally required to report under the CSRD except for listed ones, may still face indirect reporting demands from larger companies or banks in their supply chain, prompting the development of voluntary sustainability reporting standards for SMEs.
• 📝 The CSRD represents a significant transition for companies, requiring them to adapt to new reporting standards and processes, although the underlying principle of sustainability reporting is not new for those previously covered under the Non-Financial Reporting Directive (NFRD).
• 🌟 The directive positions sustainability reporting on par with financial reporting, reflecting the EU's commitment to sustainable business practices and the transition to a green economy.

Q & A

What is the main purpose of the Corporate Sustainability Reporting Directive (CSRD)?

The CSRD is designed to modernize and strengthen the rules concerning the social and environmental information that companies have to report, ensuring better transparency and accountability in sustainability practices.

Why was the CSRD introduced to replace the Non-Financial Reporting Directive (NFRD)?

The CSRD was introduced to address the limitations of the NFRD, which had broad but not very precise reporting requirements, and to include more companies, mandate assurance audits, and require reporting according to mandatory common European Sustainability Reporting Standards (ESRs).

Which companies are now required to report under the CSRD?

The CSRD expands the scope to include all large companies, all listed companies, including listed SMEs, and non-EU companies generating over 150 million euros of turnover on the EU market with a significant presence in the EU.

What are the benefits for the investment community from the CSRD?

The investment community benefits from better sustainability information to finance the transition to a sustainable economy and to better understand the risks to which their investments are exposed, thus promoting more informed investment decisions.

How does the CSRD aim to support other stakeholders besides the financial markets?

The CSRD aims to meet the information expectations of other stakeholders such as civil society, trade unions, public institutions, and media, by ensuring companies are accountable and transparent about their impacts on people and the environment.

In what ways does the CSRD benefit the companies themselves?

The CSRD benefits companies by providing them with a framework to collect and focus on sustainability information that matters to them, which can then be used in the management of the company to define strategy and ensure competitiveness and resilience.

What is the timeline for the implementation of the CSRD?

The CSRD entered into force at the beginning of the year, with reporting obligations starting for different categories of companies at different times, beginning with large listed companies and banks in 2024, followed by other large companies in 2025, and listed SMEs in 2026 or later.

How will SMEs be impacted by the CSRD, especially those not listed?

While only listed SMEs have legal sustainability reporting obligations under the CSRD, non-listed SMEs may receive increased demands for sustainability information from banks or larger companies in their value chains. To support these SMEs, voluntary standards are being developed for their use.

What are the challenges that companies, auditors, and other stakeholders might face with the CSRD?

The CSRD presents challenges such as steep learning curves for companies and auditors, the need for technical development of reporting standards, and the requirement to adapt quickly to new rules and standards for sustainability reporting.

How does the CSRD address the issue of greenwashing in sustainable finance?

The CSRD combats greenwashing by providing clear and standardized sustainability reporting requirements, which can help investors and the public have more confidence in a company's sustainable practices and claims.

What is the host's final take on the CSRD and its significance for the future of finance?

The host believes that the CSRD is a significant step towards putting sustainability reporting on equal footing with financial reporting, supporting companies in their transition to sustainable business models and providing investors with the clarity needed to make informed decisions.