Wednesday, July 24, 2024

What US companies need to know about the EU’s CSRD

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The CSRD will require comprehensive and granular disclosures covering the entire spectrum of sustainability topics. These disclosure requirements are detailed in 12 new European Sustainability Reporting Standards (ESRS) that have been drafted by the European Financial Reporting Advisory Group (EFRAG). The draft standards span environmental, social, and governance topics and are intended to provide insight into a company’s sustainability impacts, risks and opportunities, including its sustainability strategy, targets and progress, products and services, business relationships, and incentive programs.

The information reported may not be limited to a company’s own operations, but would extend to direct and indirect business relationships across the value chain. These disclosures are expected to be some of the most challenging areas of reporting, given the scope and the reliance on information from parties not controlled by the company.

The CSRD also embraces “double materiality,” which requires that companies report information necessary to understand how sustainability matters affect their business development and performance and the impact they have on a range of sustainability matters. In addition, the directive introduces a mandatory assurance obligation for all reported sustainability information. (That stands in contrast to the assurance requirement outlined in the US Securities and Exchange Commission’s proposed climate disclosure rule.) While the CFO and the CSO will play leading roles in sustainability reporting, given CSRD’s complexity we recommend companies also include their legal counsel in their reporting process. 

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