One of the most ambitious to date, the EU Corporate Sustainability Reporting Directive (CSRD) will come into effect in 2024 and significantly expands upon earlier EU legislation (NFRD). Its framework is TCFD aligned and reporting requirements include details on company governance, strategy, risks and opportunities, and metrics and targets. It will also standardise disclosures, much like financial reporting.
While it is similar to the UK’s new climate reporting legislation, the EU requirements go further. Unlike the UK, Scope 3 emissions reporting is required. Third party assurance of the data being disclosed also appears to be mandatory. More information and clarity on the reporting standards are expected June 2023.
What does “TCFD” stand for?
The Taskforce on Climate-related Financial Disclosures (TCFD) was formed by the Financial Sustainability Board (G20) in 2017 in a bid to encourage the uptake of unified climate risk and opportunity measurement and disclosure.
They developed a reporting framework that focuses on four key areas: governance, strategy, risk management, and metrics and targets. Since then, the TCFD framework has become widely adopted around the world.
What does “NFRD” stand for?
The Non-Financial Reporting Directive (NFRD) was adopted in 2014 by the EU, requiring large public interest companies (typically listed companies, banks, insurance companies with >500 employees) to provide sustainability reports along with their financials. These typically include environmental matters, social issues, diversity and more.
All member states have fully adopted NFRD principles, though some members make the reporting stricter than others. The purpose of NFRD was to make available non-financial information to determine a company’s value and risks and to encourage them to take responsibility for social and environmental concerns.
Who does it impact and when?
Similar to the UK climate legislation, the CSRD rollout is starting in 2024 with the largest companies first. CSRD will apply to all large EU companies with at least two of either a) more than 250 employees, b) a turnover of more than 40 million EUR, or c) total assets of 20 million EUR. Limited liability companies as well as small and medium listed companies will have three extra years to comply. [Source]
Despite the fact that small and medium sized companies (SMEs) won’t be required to report for a few years, it may be of value to begin putting policies and processes in place in anticipation for best practice. A recent white paper from consulting firm Deloitte notes that, “there may also be a strategic reason for SME’s to align earlier to sustainability reporting standards, such as access to finance, supply chain requirements or talent attraction”.[Source]
Falcon can be a resource on both emissions data and climate-related supply chain risks and opportunities. We will be publishing our third CDP climate disclosure this year (which is TCFD aligned) and we will be voluntarily publishing our first TCFD report later this year. Please contact us through your sales rep for more information.
Further reading and useful resources
For guidance on emissions Scopes:
https://www.epa.gov/climateleadership/scope-1-and-scope-2-inventory-guidance
https://www.epa.gov/climateleadership/scope-3-inventory-guidance
https://btlaw.com/insights/alerts/2023/scope-3-to-be-or-not-to-be-that-is-the-esg-question
The European Commission’s guidelines on non-financial reporting:
An interpretation on the requirements from the Harvard Law School:
https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7444
A Deloitte paper on Sustainability reporting in the EU:
