From 2024 at the earliest, more European and global companies will need to disclose their ESG activities in greater detail.
On 10 November 2022, the European Parliament adopted a final version of the Corporate Sustainability Reporting Directive (CSRD). The CSRD will require large EU companies (including private companies) and some global companies with significant operations in the EU to regularly report ESG-related information, putting it at the forefront of the trend toward the development of more detailed ESG disclosure regimes that is proliferating worldwide.
How Will the CSRD Change ESG Reporting Standards?
The CSRD aims to address what the EU viewed as shortcomings in its previous ESG-reporting framework, the Non-Financial Reporting Directive (NFRD). The final version of the CSRD effectively implements the version that the Parliament and Council politically agreed on in June 2022 (for more information on the politically agreed upon version, see this Latham blog post).
The CSRD broadens the scope of the NFRD by applying to more companies, and will also introduce more detailed disclosure requirements for those in-scope companies. The specific disclosure requirements will be set out in European Sustainability Reporting Standards (ESRS), drafts of which the European Financial Reporting Advisory Group (EFRAG) recently approved, following an initial public consultation earlier in 2022 on exposure drafts. The Commission will now consider the drafts submitted by EFRAG, and is required by the CSRD to formally adopt the first set ESRS by 30 June 2023 (additional ESRS will be developed by EFRAG which are to be adopted by the Commission by 30 June 2024). Once the ESRS are formally adopted, they will provide the detail as to the disclosure requirements that companies must adhere to under the CSRD, thereby impacting which ESG companies impacted by the CSRD will be required to collect and report.
The Council will likely adopt the CSRD on 28 November 2022, after which it will be signed and published in the Official Journal. The CSRD will formally enter into force 20 days after publication in the journal, although its substantive provisions will not begin impacting companies until 2024 at the earliest.
Latham & Watkins will continue to monitor the development of ESG reporting standards in the EU and globally.