Interim Sustainability Agreement

Proposal for a Directive on corporate reporting on sustainability.

The Council and the European Parliament today reached a provisional political agreement on the Directive on corporate sustainability reporting.

The proposal aims to address the shortcomings of the current rules on disclosure of non-financial information, the quality of which was insufficient for investors to be able to take it properly into account. Moreover, these shortcomings hinder the transition to a sustainable economy.

The Corporate Sustainability Reporting Directive amends the 2014 Non-Financial Reporting Directive. It also introduces among other things:

• More detailed reporting requirements and ensures that large companies are obliged to publish information on sustainability issues, such as environmental rights, social rights, human rights and governance factors.

• A requirement to certify the information published on sustainability, as well as to improve access to information, by establishing that it must be published in a specific section of the companies' management reports.

The European Financial Reporting Advisory Group (EFRAG) will be responsible for setting European standards, with technical advice from various European agencies. The scope of the EU regulations on non-financial reporting is as follows:

• Large public interest companies with more than 500 employees and all large companies and companies listed on regulated markets. These companies are also responsible for the evaluation of information by their subsidiaries.
• Listed SMEs, taking into account their specific characteristics. SMEs will have the possibility of anopt-out during a transitional period, i.e. they will be exempt from applying the Directive until 2028.
• As regards non-European companies, the obligation to submit a sustainability report applies to all companies that generate a net turnover in the EU of more than EUR 150 million and have at least one subsidiary or branch in the EU. These companies must report on their ESG effects, i.e. environmental, social and governance aspects as defined in the Directive.

The information must be certified by an auditor or an accredited independent certifier. In order to ensure that companies comply with the reporting standards, they will ensure that the sustainability information is in accordance with the certification standards adopted by the EU. Information submitted by non-European companies must also be certified by a European auditor or an auditor established in a third country.

Regarding the implementation of the Regulation, it will be carried out in three phases:

• January 1, 2024 for companies already subject to the Non-Financial Disclosure Directive;
• January 1, 2025 for large companies not currently subject to the Non-Financial Disclosure Directive;
• January 1, 2026 for listed SMEs, as well as for small and non-complex credit institutions and captive insurance companies.

The provisional agreement reached must be endorsed by the Council and the European Parliament.

Likewise, as far as the Council is concerned, the provisional agreement will be submitted to the Permanent Representatives Committee (Coreper) for approval before proceeding to the formal stages of the adoption procedure.

Finally, the Directive shall enter into force on the twentieth day following that of its publication in the OJEU. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with the Articles of this Directive not later than eighteen months after its entry into force.