Sustainability disclosure directives: What’s the difference?
A straightforward examination of the major sustainability disclosure directives around the world, including who they apply to and what differentiates them
Sustainability reporting and disclosure requirements are a significant talking point for businesses around the world right now. There are various new and evolving directives coming from major regulatory bodies relating to corporate sustainability, and it’s vital for organizations — especially international corporations — to fully understand each of them.
In this article, we’ll delve into three of the most significant sources of sustainability disclosure directives and standards: the Corporate Sustainability Reporting Directive (CSRD), the ISSB’s IFRS Sustainability Disclosure Standards, and the US SEC’s (Securities and Exchange Commission’s) early 2024 Climate-Related Disclosures.
Corporate Sustainability Reporting Directive (CSRD)
The CSRD came into force on 5 January 2023 and is mandatory for companies already subject to the Non-Financial Reporting Directive (NFRD), large EU companies (with over 250 employees and a net turnover of EUR 40 million), companies listed on regulated markets, listed SMEs (small and medium enterprises), and any non-EU companies generating a net turnover of over EUR 150 million in the EU — providing they have a subsidiary or branch in the EU.
The CSRD was initially meant to be transposed in member states by 6 July 2024, but as this deadline passed there were still several nations that hadn’t completed the transposition. According to Ropes & Gray’s CSRD tracker, just seven countries hadn’t completed their CSRD transposition by 19 July 2024 — each anticipated to do so in the coming months.
Double materiality requires more information and insight
The CSRD has adopted double materiality as its method of assessment, which means companies need to not only report on how environmental and social factors impact the business, but also what impact the business’s operations have on the environment and society.
Data quality is a definite must
The mandatory standards laid out by the CSRD specify that the data gathered and reported must be “investment-grade” and provided in a digital, taggable format so that all stakeholders, third-party auditors, and other relevant parties can access the information.
Data collected for reporting will need to undergo independent auditing and verification from 2025 onward to ensure the information provided is accurate and unbiased.
Important facts and figures to know
- Each EU country must “transpose” the CSRD into national legislation by 6 July 2024
- The actual laws passed in each EU country may be different, depending on each government’s interpretation of the CSRD
- Governments may not dilute the CSRD — they can only strengthen its requirements
- Some countries completed the transposition earlier, while others are catching up
- France was the first country to transpose the CSRD, including up to five years in prison for directors failing to certify reporting information correctly
- At least 50,000 companies will be in direct scope of the CSRD, but the number of companies actually affected could be significantly higher due to indirect requirements through supply chain inheritance
- To ensure complete compliance, all partners in the supply chain will need to fulfil the same requirements
- Elements of the European Sustainability Reporting Standards (ESRS), broken down by ESG topics, are included in the CSRD — making it very prescriptive.
Dates for the diary
- 6 July 2024: All but seven EU Member States have transposed the CSRD into national law
- 2025: Companies must report on their first year under the CSRD (2024)
- 2026: EU small and medium enterprises (SMEs) will need to start CSRD reporting, too
- 2028: International companies with over EUR 150 million annual revenue within the EU and at least one subsidiary or branch in the EU exceeding certain thresholds will be required to start reporting at a consolidated group level (including non-EU activity)
ISSB’s IFRS Sustainability Disclosure Standards
The International Financial Reporting Standards (IFRS) organization maintains accounting standards that define how financial statements should be reported by businesses. In 2021, the IFRS created the International Sustainability Standards Board (ISSB) to provide guidance for the creation of “high-quality, globally comparable information on sustainability-related risks and opportunities”. The result of this is the IFRS Sustainability Disclosure Standards — a set of clearly defined sustainability standards which are used across 163 jurisdictions.
While still only a globally recognized set of guidelines at the time of writing, these standards are becoming mandatory for corporations operating in those jurisdictions as they’re adopted into legislation.
It’s important to note that while the US is listed as one of the 163 IFRS jurisdictions, domestic US companies must use the US Generally Accepted Accounting Principles (GAAP) rather than the ISSB’s standards.
How are the ISSB’s standards different from the CSRD?
Unlike the CSRD, the ISSB’s standards are only concerned with single materiality — the impact of social and environmental factors on business operations — and are focused only on climate change, for now. This more limited scope does mean, however, that they’re much more likely to be standardized across jurisdictions.
US SEC’s climate-related disclosures
The US Securities and Exchange Commission’s (SEC) climate-related disclosures were announced in March 2024. These disclosures set forth rules and regulations requiring businesses to report on activities related to climate change, such as greenhouse gas emissions.
Under the disclosures’ requirements, every publicly traded company doing business in the US will be affected — meaning it impacts approximately 6,000 to 8,000 US stock exchange-listed companies, plus the supply chain partners who wish to ensure access to these companies as their customers.
Useful information
- Like the ISSB’s IFRS standards, these disclosures take a single materiality perspective
- Climate-related risks to a company’s integrity and longevity are the primary focus
It’s important to note that the SEC’s climate-related disclosures were promptly suspended in April 2024, to allow for further discussion. While those discussions are ongoing, this offers businesses in the US an opportunity to evolve their approach to sustainability, incorporating both the emerging EU requirements and the final US incarnation of these requirements before they go into effect.
Sustainability reporting is an inevitability — businesses must be future-proofed for when it comes
It’s highly likely that at least one of these directives will apply to your business — whether directly or indirectly via supply chain inheritance. It’s also clear that greater transparency and standardized data reporting is at the core of corporate sustainability conversations. This is leading to directives and regulations with a high and wide-reaching expectation of the information companies will need to provide — including its quality and format.
It’s therefore vital for corporations to be well-informed, well-versed, and prepared for what’s required.
How Enhesa’s Corporate Sustainability solutions can help
With over 30 years of experience in global corporate compliance, Enhesa has a solid foundation of regulatory understanding and insight to provide businesses with the right information to be well prepared for corporate sustainability requirements.
With our Corporate Sustainability solutions, companies can:
- Identify and track regulatory requirements with access to the latest updates in a clear and digestible format
- Take control of compliance management with a standardized, centralized dashboard for a global view of compliance across all business functions
- Streamline data collection for consistent, transparent performance tracking and reporting
- Complete risk assessments that fulfil current regulatory requirements and factor in upcoming changes
- Benchmark and forecast accurately using the most relevant and up-to-date data on regulations
Learn more about corporate sustainability and disclosure requirements
In this article, we’ve laid out the basics of the three most significant sustainability directives around the world. But there’s a lot more to discover about each of them to truly understand the impact sustainability reporting will have on your business. Delve a little deeper with this selection of useful resources to learn more…