Unveiling the Shift in News Coverage: Highlighting the Importance of the Supply Chain
The European Union has taken a significant step towards enhancing corporate sustainability transparency with the introduction of the Corporate Sustainability Reporting Directive (CSRD). This directive significantly expands sustainability reporting obligations for large companies and publicly traded mid-sized companies in Europe.
A Broader Scope for Sustainability Reporting
Under the CSRD, the sustainability balance sheet is replaced by the sustainability report, which will be integrated into the management report. The new directive will affect all large companies and those on the stock exchange, as well as SMEs on the exchange from 2026 onwards.
For large companies already under the Non-Financial Reporting Directive, compliance begins with the 2024 financial year, with reports published in 2025. The CSRD widens the scope to all large companies operating in the EU, not just public interest entities.
Enhanced Transparency for Investors and Stakeholders
The CSRD requires companies to provide detailed sustainability disclosures that align environmental, social, and governance (ESG) information with financial reporting. This transparency aims to help stakeholders, including investors, consumers, and civil society, better evaluate sustainability risks and impacts.
Companies must disclose information on their strategy in relation to sustainability risks, ESG opportunities, and transition plans towards a zero-emission economy. They are also required to detail their impact on people and the environment, and how sustainability issues affect their results and situation.
Impact on Small and Medium-sized Enterprises (SMEs)
While the directive does not generally apply to small companies, publicly traded mid-sized companies will become subject to the CSRD from 2026. The European Commission’s Omnibus Proposal suggests raising employee thresholds for large companies, potentially exempting many mid-sized companies and thereby reducing reporting obligations for smaller businesses in the near term.
Small businesses outside the scope can voluntarily adopt CSRD standards to increase transparency and meet investor demands but are not required to do so.
Focus on Supply Chain Sustainability
The CSRD aligns closely with sustainability and due diligence initiatives, requiring companies to consider and disclose impacts throughout their supply chains. By mandating comprehensive ESG reporting, companies must assess environmental and social risks not only within their operations but also extending to suppliers.
This incentivizes companies to engage suppliers on sustainability issues, improve supply chain transparency, and manage risks related to environmental harm, labor rights, and social responsibility.
Delayed Compliance Deadlines and National Implementation
There have been recent EU-level adjustments to delay or simplify compliance deadlines, easing immediate administrative burden but potentially slowing progress. Countries like Ireland and several others have already transposed the CSRD into national law while the European Parliament and Council continue reviewing technical standards and amendments.
In summary, the CSRD will require a far greater number of large and publicly listed companies to produce detailed, standardized sustainability reports integrating supply chain impacts, while many smaller businesses remain exempt but encouraged to adopt similar transparency voluntarily. This expands European corporate transparency and accountability regarding sustainability risks and opportunities.
[1] European Commission. (2021). Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector.
[2] European Commission. (2021). Proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2017/828 on the approval of statutory auditors, amending Directive 2006/43/EC as regards the implementation of the audit regulation, and repealing Directive 2006/43/EC.
[3] European Commission. (2021). Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2019/2089 on the framework for the sustainability-related disclosures of non-financial undertakings and amending Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment.
[4] European Commission. (2021). Proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2017/828 on the approval of statutory auditors, amending Directive 2006/43/EC as regards the implementation of the audit regulation, and repealing Directive 2006/43/EC.
[5] European Commission. (2021). Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2019/2089 on the framework for the sustainability-related disclosures of non-financial undertakings and amending Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment.
- As the CSRD encourages comprehensive Environmental, Social, and Governance (ESG) reporting, companies will need to disclose not only their internal operations but also their impact on people and the environment throughout their supply chains, thereby fostering Supply Chain Sustainability.
- To align with the CSRD, large companies and publicly traded Mid-sized Companies in Europe are required to provide detailed sustainability disclosures that reveal their Environmental lifestyle through transition plans towards a zero-emission economy, aiming to enhance Transparency for Investors and Stakeholders.
