EU adopts sustainability reporting standards to encourage sustainable finance

Brussels: The EU has announced the adoption of sustainability reporting standards, which will require companies to provide information on various environmental, social and governance issues.

All companies subject to the bloc’s Corporate Sustainability Reporting Directive will be required to adhere to the standards.

The EU designed the standards so that investors and consumers can access a fuller picture of the sustainability impact of companies they are investing in.

“They strike the right balance between limiting the burden on reporting companies while at the same time enabling companies to show the efforts they are making to meet the green deal agenda, and accordingly have access to sustainable finance,” said Mairead McGuiness, the EU’s Commissioner for Financial Services, Financial Stability and Capital Markets Union.

Large companies will be required to apply in the form of annual reports, starting in the 2024 financial year, with reports being published in 2025. Smaller companies will have another two years before they are required to begin reporting.

The standards, adopted on 31 July, cover topics such as climate change, biodiversity and human rights. According to the European Commission, they also “take account of discussions with the International Sustainability Standards Board and the Global Reporting Initiative in order to […] prevent unnecessary double reporting by companies”.

However, critics are disappointed by the announcement, which they see as a watering down of requirements handed to the European Commission. The European Financial Reporting Advisory Group (EFRAG), an independent advisory group, developed the draft standards before they were eased by the commission. Several data points that EFRAG had identified as mandatory were made voluntary for companies to report on by the European Commission.

The new rules are now subject to two months of scrutiny from the European Parliament and EU states. Following this, they will either be accepted or rejected, and additional phase-in provisions for companies with under 750 employees may also be introduced.

Individuals will have the flexibility to determine what information is “material”, or relevant and should therefore be reported. Critics have cautioned that this provision opens up opportunities for greenwashing by companies that only disclose certain practices.

Companies will also not be required to disclose why they deem certain information irrelevant.

Philippe Diaz, senior manager of sustainable finance at the German office of international charity the World Wildlife Fund, accused the commission of “cav[ing] in to pressure from conservative industry groups” in a statement.

“This is a serious betrayal of trust and undermines Europe’s claim to leadership in building an economy that is socially just and compatible with the planetary boundaries,” he added.