On Monday, according to this press release from the Council of the European Union, all 27 members of the European Council voted in favor of the adoption of the Corporate Sustainability Reporting Directive, the last step for the CSRD to become law in the EU. The new rules require subject companies “to report on sustainability matters such as environmental rights, social rights, human rights and governance factors,” with a phase-in beginning in 2024. The new rules are intended to “increase a company’s accountability, prevent divergent sustainability standards, and ease the transition to a sustainable economy.” Notably, “subject companies” are not limited to European companies—US companies that meet specific EU presence tests will also be subject to these requirements. According to the Minister for Industry and Trade of the Czech Republic (which currently holds the presidency of the Council of the EU), “[t]he new rules will make more businesses accountable for their impact on society and will guide them towards an economy that benefits people and the environment. Data about the environmental and societal footprint would be publicly available to anyone interested in this footprint. At the same time, the new extended requirements are tailored to various company sizes and provides them with sufficient transition period to get ready for the new requirements.” The new rules will go into effect 20 days after approval on Monday and will need to be implemented by member states 18 months later. (See this Cooley Alert, EU’s New ESG Reporting Rules Will Apply to Many US Issuers.)
Under the new rules, the press release indicates, “companies will have to report on how their business model affects their sustainability, and on how external sustainability factors (such as climate change or human right issues) influence their activities. This will equip investors and other stakeholders better for taking informed decisions on sustainability issues.” The new rules will apply to large EU companies and listed EU small and medium-size EU companies, with some exceptions. Non-EU companies will be required to provide a sustainability report if they generate “a net turnover of EUR 150 million in the EU,” and “have at least one subsidiary or branch in the EU exceeding certain thresholds.” (“‘Net turnover’ means the amounts derived from the sale of products and the provision of services after deducting sales rebates and value added tax and other taxes directly linked to turnover.”) Reporting will be phased in, beginning in 2024 with companies already subject to the non-financial reporting directive, a delay from the original expectation of 2023. Reporting for subject non-EU companies will be required in 2029 for fiscal 2028. The European Financial Reporting Advisory Group (EFRAG) will develop draft European standards, final versions of which will be adopted by the European Commission.