23 April 2021

CDSB supports EU’s ambition to review the corporate reporting rules and suggests improvements to meet Green Deal objectives

CDSB welcomes the much-awaited publication of the Corporate Sustainability Reporting Directive (CSRD). The suggested changes presented by the European Commission represent a solid foundation to start discussions, but some improvements are needed.

Since 2018, CDSB undertook annual reviews of the implementation of the Non-Financial Reporting Directive (NFRD) to support the European Commission with the evidence that it was falling short of its intended purpose of providing decision-useful, consistent and comparable information, answering the needs of investors and other stakeholders. 

Against this background, CDSB welcomes today’s publication of a revised CSRD to help Europe achieve the objectives of the Green Deal in the context of the economic recovery from Covid-19. The review will be instrumental both for the implementation of existing legislative proposals, including the Taxonomy regulation, and for the success of the future Renewed Sustainable Finance Strategy to be published later this year. The current draft introduces key elements that will contribute to the reporting of high-quality information, thanks to clearer and better interconnected reporting requirements complemented by suitable European sustainability reporting standards developed in a co-constructed way with existing reporting frameworks and standards. 

CDSB supports a number of the suggested changes, as they have the potential to strengthen the quality of sustainability information, including: 

• The extension of the scope of companies to include all large undertaking of more than 250 companies; 
• The requirement to make sustainability information available in a digital and machine-readable way alongside the European Single Electronic Format for financial information; and 
• The strengthening of assurance, governance and supervisory mechanisms which will ensure that sustainability information is put on an equal footing with financial information.

As these changes are the starting point of the upcoming political discussions between the European Parliament and EU Member States, we would like to raise their attention to the following issues that could be further addressed to ensure that the CSRD fulfils its intended purpose:  

• Clarify the needs of the various users of sustainability information: while we welcome mandating the inclusion of the information in the management report and in a digital way, the proposed Directive does not make a clear distinction between the needs of investors and those of other civil society organisations. All stakeholders are important, but their needs are different. This is a key consideration to have in mind when it comes to where certain types of information is to be reported either in the management report, or in a standalone sustainability report; 
• Reflect further on the best way to define and apply double materiality to take into account of different stakeholder needs: the proposed definition of double materiality will need to be better defined and operationalised to ensure that companies report on issues material from a risk and value creation perspective, which is still widely underreported on, as well as on impacts; 
• Carefully consider the best way to structure the different reporting areas and ensure consistency with the TCFD Recommendations: the suggested changes aim to fill the gaps in the information reported by companies, while also embedding the TCFD’s Recommendations within the legal text. We support such alignment between the requirements of the CSRD and international standards and frameworks, but believe the suggested approach could be further improved to ensure an implementation of the TCFD Recommendations in full and in a consistent way. This is especially important when it comes to risk management and governance; and 
• Specify process, governance and roadmap for development of European sustainability reporting standards: we are convinced of benefits of standardisation, including digitisation, assurance and enforcement of sustainability reporting, as well as its benefits to the reduction of the reporting burden for report preparers.  Beyond what we stated on EFRAG’s proposals, the proposed Directive lacks details around the standard setting principles that EFRAG will apply, which must include a check for alignment with international frameworks and standards. We believe that strong collaboration between Europe’s standard setting and the international harmonisation processes will be mutually beneficial. As such, we call for further clarity on the process for development of such European sustainability reporting standards to reflect on the best ways for a co-constructed approach, where Europe builds on and contributes to international initiatives on sustainability reporting.
  

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