The following are key points about the proposed CSRD:
- The current rules (Non-Financial Reporting Directive) scope in 'large' public interest entities. The amendments would extend coverage to all 'large' (new definition) companies and all companies (other than micro-companies) with securities listed on EU-regulated markets; a three-year deferral would apply to small and medium-sized listed companies. These changes would extend the scope from under 12,000 to nearly 50,000 companies.
- The proposal applies to all companies operating in Europe that meet the criteria – e.g. a 'large' EU subsidiary of a US parent. Such a subsidiary would be exempt from ESG reporting only if its foreign (e.g. US) parent reports equivalent information (by nature and with assurance) at the consolidated level; this assessment of equivalency would be made by the European Commission at a country (not an entity) level.
Extended ESG reporting scope
- For companies reporting on ESG matters for the first time, the disclosures would be extensive, covering the environmental, social and governance categories of ESG. For companies already in the scope of the current rules, new disclosures would include information that is material for stakeholders other than investors, as well as disclosures about social, human and intellectual capital.
New assurance requirements
- The CSRD would introduce mandatory limited assurance over the ESG reporting (including the processes followed in preparing it). Limited assurance is usually a negative form of expression stating that no matter has been identified by the practitioner to conclude that the subject matter is materially misstated.
- The scope may be extended to full assurance after three years.