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Corporate sustainability reporting: a new generation of EU regulations


Jan Noterdaeme, Co-founder and Senior Consultant of CSR Europe

"It is critical, also for Chinese companies to address this new transparency regulation and the guidelines and standards with a proper approach to other regulations that are coming into force very soon. The European law on deforestation, on battery, the forced labor, a law that is also going to come into place in the next couple of years. So you need to have a holistic approach and integrated approach. Don't take all these regulations slice by slice."

On December 8, Jan Noterdaeme and Morris Massarutto presented the latest developments in corporate social responsibility (CSR) in Europe through video presentations at the 16th International Conference on CSR Reporting in China. They also provided a detailed interpretation and analysis of the scope, content, and requirements of the Corporate Sustainability Reporting Directive (CSRD).

The following is key takeaway of Jan Noterdaeme's speech:

“It is exactly ten years ago that large companies in Europe were asked to comply with the Non-financial Reporting Directive, asking them to be far more transparent on the way they were conducting their businesses in their relation to all the sustainability challenges that we are aware of.  This was the result of twenty years of debates and dialogues, including a lot of learning between many different stakeholders but also a lot of breaching of different opinions.

CSR Europe together with the Global Reporting Initiative, the European social partners and a group of non-governmental organizations, we have been invited to co-design the very first transparency regulation. But already ten years after, we all observed that climate change, biodiversity and the UN conditions and the livelihoods in many parts of the world were worsening at a very fast pace and at a much larger scale.

And that is why the European Union decided in 2020 to adopt a very ambitious objective to become the first climate neutral continent in the world. And to that end, the 27 governments have adopted what is called today the European Green Deal. It is the very first overarching European strategy on sustainability and it includes all kinds of policies and regulations on climate, on energy, on housing, on food, on mobility, all critical areas which are today requiring a lot of sustainability transformation, a lot of new collaborations inside industry sectors across industry sectors, but also a lot of innovation towards for more secure products and services.

And to support financially all these giant efforts, the Green Deal is also including a universal strategy on sustainable finance, asking investors to flow their capitals to support this short medium and long term efforts of companies. And it is inside this European strategy of sustainable finance that you can see today the CSRD, the Corporate Sustainability Reporting Directive and that will be complimented by a number of guidelines.”

Morris Massarutto, Project Manager of CSR Europe
The following is a summary of Morris Massautto's sharing of the CSRD:
Back in April 2021, the European Commission proposed the Corporate Sustainability Reporting Directive, which is now a reality and in force since January 2023. Together with this directive, the European Union has also developed a series of European Reporting Standards. The first set was approved last June. Both the CSRD and the standards will apply with the same timeline to different EU and non-EU companies. For non-EU companies, both the directive and standards will apply starting from the Financial Year 2028.
This Corporate Sustainability Reporting Directive is updating an already existing directive on Non-Financial Reporting. The CSRD is introducing new information, both qualitative and quantitative information that companies should report on when they perform their sustainability report.
1. With the CSRD, the scope of application is enlarged. The previous directive applied to 11,000 companies in Europe. And now with the new directive, the companies subjected to the new directive are around 50,000. The the CSRD foresees the aggregation of mandatory EU sustainability reporting standards. And as said before, the first set of the standards was approved in June 2023.
2. Reporting requirement: For the first time also, the European Union is asking companies to include the sustainability reporting into the annual report of the company, meaning that both the sustainability information, financial information are put them on an equal footing. The sustainability report has also to be digital, machine-readable, and accessible to the European Single Access Point, which is a platform that European Commission is developing. For the first time, the CSRD is speaking out the Double Materiality approach, meaning that the companies should report both on its impact on the environment and society but also how the ESG factors affect the company and its financial value.
3. The mandatory EU sustainability reporting standards include:
1) The first set of standards is cross sectorial with 12 different standards. The first two standards are explaining company how to to report and are disclosing the general information and principles, while the other ten standards are divided into the three categories:environment, social, and governance.For environmental area, the company should report on five different topics from climate change to pollution, from water to biodiversity and circular economy. While for the social area, companies should report on own workforce, workers in the value chain, affected communities, and consumers. For the governance area, companies should report on their business content.
2) Next to this first set of standards, the European Commission is also working on a simplified version of standards for listed SMEs and also a voluntary framework for Micro, small and medium enterprises that are not under the scope of the CSRD, but yet part of the value chain of large undertakings. This simplified version of standard for small and medium enterprises should be released in June 2025. Next, the second batch of standards that European Union is also working on a sector specific standards to be released in 2026.
This new generation of regulation represents an avalanche or a tsunami as you prefer on European and non-European companies that are facing this new generation of requirement. And that is why CSR Europe has developed a series of practical tools and services to our companies in their journey towards sustainability. For example, CSR Europe has in place a new alignment service where it aligns the sustainability practices of a company and vis-a-vis the EU requirements, CSR Europe identifies gaps and also suggests the concrete action to bridge these gaps. From this year, CSR Europe is also opening the access to our EU master classes to individual professional that wants to know more about the European policies.”
Jan Noterdaeme continued to conclude that we need to have a holistic approach and integrated approach to such regulations. We also need to remind ourselves that reporting is not an end in itself. It is a means to help companies to take better decisions and a strong tool for augmenting the capacities of managing sustainability complex issues.

Speaker | Jan Noterdaeme, Morris Massaretto
Edited by: Fu Xuan
Source: Compiled based on the speakers' speeches on the conference
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