Directive on corporate sustainability reporting is published

European Union - 

The new EU legislation requires companies to report regularly on the effect of their activities on people and the environment.

Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022, amending Regulation (EU) 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting, has been published in the Official Journal of the European Union.

The legislation amends Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) 537/2014, as regards corporate sustainability reporting.

The aim of the aforementioned legislation is to place sustainability reporting on an equal footing with financial reporting, responding to the exponential increase in the demand for information on this subject that has arisen in recent years, particularly on the part of the investment community, thereby providing access to reliable and comparable data.

The directive introduces more detailed obligations regarding the impact that companies have on the environment, human rights and social matters, based on common standards in line with the EU’s climate objectives. It represents a noteworthy step towards the setting of worldwide sustainability standards. Specifically, the European Commission is expected to adopt delegated acts in the first half of 2023, in order to set sustainability reporting standards, which will include the first set of sustainability standards, approved in November 2022 by EFRAG (an entity that advises the European Commission on the adoption of international financial reporting standards).

It also guarantees digital access to information on sustainability and, to ensure that companies offer reliable information to the market and that investors have access to comparable data, companies will be subject to independent audits and certification processes.

The new EU sustainability reporting requirements will apply to all large companies, whether or not they are listed on securities markets. Non-EU companies that do significant business in the EU (net turnover of more than 150 million euros in the Union and which have a subsidiary undertaking or a branch on the territory of the Union) will also have to comply with the standards, as will SMEs listed on stock exchanges.

As we previewed in our alert on November 14, 2022, the directive will enter into force twenty days after its publication and the standards will be mandatory for companies in the following three stages:

  1. From January 1, 2024, for companies that are public-interest entities (over 500 employees) that are already subject to the directive on non-financial reporting, which must deliver their reports in 2025.
  2. From January 1, 2025, for large companies not subject to the directive on non-financial reporting (over 250 employees and/or turnover of 40 million euros and/or 20 million euros in total assets), which must deliver their reports in 2026.
  3. From January 1, 2026, for listed SMEs and other companies, which must deliver their reports in 2027.