Understanding the EU Corporate Sustainability Reporting Directive
It’s been a couple of busy weeks in the EU, just before the end of 2022. The Council passed the Corporate Sustainability Reporting Directive (CSRD), the Parliament and Council reached a preliminary deal on a ban on products related to deforestation and agreed on a new Batteries Directive.
Pushing for Standard Disclosure
The CSRD amends and replaces the Non-Financial Reporting Directive (NFRD). The Directive will apply to companies already in scope of the NFRD as of January 2024, followed by other large companies in 2025, listed SMEs in 2026 and non-EU companies in 2028.
The aim of the CSRD is to push corporate accountability on sustainability matters by increasing and standardizing disclosure.
To achieve standardization, the EFRAG (European Financial Reporting Advisory Group) has issued 12 sector-agnostic ESRS (European Sustainability Reporting Standards) outlining what sustainability elements companies must report on. These include two cross-cutting standards and ten topical standards, covering environment, social and governance.
Companies in scope of the CSRD must apply the double materiality principle in their reporting, make their report electronically available and provide it as a dedicated section of the management report.
Fighting Deforestation and Forest Degradation
With an estimated forest area of 10 football pitches lost every minute globally, the Proposal for a regulation on deforestation-free products (EUDR) aims to ban products from the EU market which are linked to deforestation or forest degradation. The commodities and products in scope are soy, beef, palm oil, wood, cocoa and coffee and some derived products, such as leather, chocolate and furniture. Operators are expected to exercise supply chain due diligence to ensure that the commodities and products have not been produced on land deforested or degraded after 31 December 2020, and that they have been produced in accordance with the laws of the country of production.
This due diligence should cover the following elements:
Ensure access to information on the commodity, quantity, supplier, geographic coordinates of plots of land, country of production, etc.
Use the information on the plots of land used for producing the commodities to analyze and evaluate the risk in the supply chain. This includes traceability by collecting the geographic coordinates of the land where the commodities they place on the market were produced.
Take adequate and proportionate mitigation measures for risks identified.
Cleaning up Batteries
The revision of the Batteries Directive has resulted in a proposal for a Batteries Regulation, replacing the current directive.
The Regulation will apply to all batteries sold in the EU, focusing on rules around circularity and sustainable products while at the same time introducing new due diligence requirements on raw materials used in batteries’ supply chains.
The aim of the regulation is to strengthen the competitiveness of the EU industry and sustainability of batteries and waste batteries. This is done through rules on end-of-life, such as collection targets and obligations, targets for the recovery of materials and extended producer responsibility. The regulation also looks at further restricting hazardous substances and introduces labelling and information requirements in the form of an electronic battery passport. This passport would include information on capacity, performance, durability, chemical composition and for some (EV) batteries a carbon footprint declaration.
Increasing concerns around human rights abuses in the raw materials (mining) supply chain of batteries have led to strict due diligence requirements, where operators will have to
Verify the sources of raw materials used
Have a due diligence policy to address abuses in the supply chain
What is next
When policy makers get busy, companies must get ready. German companies are preparing for the German Supply Chain Act and companies active on the US market are working on compliance with the Tariff Act and UFLPA through due diligence and traceability.
Read our whitepaper Mandatory Human Rights & Environmental Due Diligence: How to Get Prepared to get a full picture of what is in place or coming in.
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