As discussed in this excellent new Cooley Alert, EU Adopts Long-Awaited Mandatory ESG Reporting Standards, in January 2023, the European Union adopted the Corporate Sustainability Reporting Directive, which requires EU and non-EU companies that meet certain EU activity thresholds to file annual sustainability reports alongside their financial statements. These reports must be prepared in accordance with European Sustainability Reporting Standards, the first set of which were just adopted by the European Commission on July 31, 2023 and will soon become law and apply directly in all 27 EU member states (but not in the UK). Companies will need to report in compliance with these new ESRS as early as 2025 for the 2024 reporting period (and note that large EU subsidiaries of non-EU companies that meet certain criteria will need to report in 2026 for the 2025 reporting period).
As the Alert observes, there are significant differences between the SEC’s proposed rules on climate disclosure and the ESRS, including how the ESRS approach value chain reporting, the need for both financial and impact materiality assessments (i.e., double materiality), and the need to report on a broader set of sustainability topics, such as biodiversity, water and pollution. In addition, according to the Alert, the ESRS “extend well beyond the current limited SEC requirements related to human capital and governance matters”—they even include disclosure requirements on political contributions and lobbying, which, as you know, the SEC has long been prohibited by Congress from adopting in the U.S. Be sure to check out the new Alert!