In 2019 the European Commission announced the “Green Deal” – a commitment to make the European economy more sustainable and climate neutral by 2050. A key aspect of this initiative is a strategy on financing sustainable growth recognising the importance of the private sector to invest in the green transition. The review of the Non-Financial Reporting Directive is part of the plan to reinforce the basis for sustainable investment. Improving corporate disclosure of non-financial information to increase accountability to investors and relevant stakeholders is therefore crucial.
WBA has been actively driving this agenda to improve corporate disclosure, reporting, and sustainable finance, through our benchmarks. The launch of the Corporate Sustainability Reporting Directive (CSRD) by the European Commission is a landmark moment on the path towards establishing a common set of European reporting rules that will seek to improve transparency. It will require companies to report sustainability information in a consistent and comparable way. The long-term goal is for the EU to take the lead in establishing standards for sustainable finance through the introduction of a comprehensive sustainability reporting framework. This would help companies adapt their business models and ultimately enhance the provision of sustainability information in the corporate world.
What is CSRD and why does it matter?
The CSRD publication, along with the EU initiative to promote sustainable corporate governance, will significantly overhaul the current context of corporate reporting on environmental, social and governance information. These are fundamental elements to understand a company’s development, performance and position, as well as the impacts of its activities on society and the planet. The CSRD sets out a number of ambitious objectives aimed at incentivising more transparency from companies. In particular, it seeks to:
- Extend the scope to include all large companies, whether they are listed or not and without the previous 500-employee cap. This would make large companies publicly accountable for their impact on people and planet.
- Require the audit (assurance) of reported information (‘limited’ assurance). This has the potential to open up the market for sustainability assurance services to so-called ‘independent assurance service providers’.
- Introduce more detailed reporting requirements, and an obligation to report according to future mandatory EU sustainability reporting standards.
- Compel companies to digitally ‘tag’ reported information and make it machine readable as part of supporting the development of a European Single Access Point, through which key financial and non-financial information of EU-listed companies would be located on a single portal.
How does CSRD improve corporate sustainability reporting?
WBA welcomes a number of areas that are featured in the CSRD, namely ensuring that the future corporate reporting approach is aligned with the SDGs to guarantee global consistency. This also includes the recognition that it is crucial not just to focus on the risks to companies but also the impacts of companies on society and the environment (the so-called ‘double materiality’ principle). WBA fully supports efforts to promote greater global harmonisation and consistency of non-financial reporting requirements to assist companies who have reporting obligations across multiple jurisdictions. Our Financial System Benchmark will play a key role to inspire leadership from financial institutions, and accelerate the development and uptake of disclosure frameworks that can enhance accountability and incentivise action in meeting global goals such as the SDGs and the Paris Agreement.
What should be considered for future adaptation of CSRD as a reporting framework?
It is clear that the roadmap to implementation will focus on the importance of an effective reporting ecosystem. A major step will be to better define the relationship between non-financial reporting and financial performance through more explicit linkages of disclosure data to corporate sustainability goals. Driving harmonisation in the reporting process through a transparent and multi-stakeholder approach will ensure disclosure recommendations are relevant, credible and consistent. Ensuring data can be made actionable is the first step in driving the systems transformations needed to achieve the SDGs. Avoiding duplication in the reporting architecture will also be crucial to build on what already exists rather than creating a new reporting burden on preparers. Similarly, clarity on new reporting requirements will be essential to remove ambiguity which could cause confusion for users and preparers of non-financial information. We welcome the fact that the work of our Allies GRI, CDP, CDSB and SASB are explicitly referenced.
WBA has also been working closely with the Impact Management Project Structured Network to help provide the enabling environment for implementation, including around global alignment in sustainability reporting. Read here the policy recommendations from our recent Policy Co-Lab with CDSB. At EU level, WBA is continuing to strengthen our engagement within the EU policymaking space, most recently through our Policy Co-Lab co-hosted with the Carbon Disclosure Standards Board (CDSB) on addressing systematic risk and encouraging sustainability transparency in the financial system.
How could CSRD lead to a positive change in corporate practices?
The European Commission has taken the lead in advocating the model of Sustainable Finance, through guiding private investment on the just transition to a climate-neutral and resilient economy, embodied in the Green Deal. WBA continues to highlight the importance of corporate disclosure to ensure data is made widely available and that this is reliable and comparable. Our benchmarks provide a clear accountability mechanism and feedback loop for governments, policymakers and investors to accelerate corporate action on the SDGs to stimulate a positive cycle of improvement.
The CSRD has the potential to redefine corporate reporting and create a race to the top by encouraging greater transparency on company performance to bring about real positive change on society and planet. Let’s seize the opportunity with our partners to make it count.