by Domenico Iodice
1.12. Proposal for a Directive on Corporate Sustainability Reporting:
CSRD COM(2021)189 final
In terms of regulatory updates, it should be added that among the many initia-tives of the European Commission, contained in the Communication on the Eu-ropean Green Deal of 11 December 2019, the revision of the NFRD, initially scheduled for Q4 2020, has also been announced (8), as part of the strategy to strengthen the basis for sustainable investments. Among the various calls for reform from various stakeholders, the Italian trade union (banking and insur-ance) First Cisl also called for and argued the case for a strengthened regulatory
(8) See EUROPEAN COMMISSION, Corporate sustainability reporting. EU rules require large companies to publish regular reports on the social and environmental impacts of their activities, in ec.europa.eu.
approach to non-financial reporting (9). Indeed, the demand for better infor-mation from investee companies is driven both by investors who need to better understand the financial risks arising from sustainability crises, and by the in-crease in financial products that aim to address environmental and social con-cerns. The current NFRD does not adequately address the needs highlighted in
§ 1.11 above on management diversity, as reflected in the Commission Staff Working Document SWD(2019)403 final (10) according to the findings of the Fitness Check on the overall EU framework for public reporting by companies (11).
The Commission associated the results of an impact assessment of the NFRD on non-financial reporting (Study on the NFRD) and sustainability ratings (Study on Sustainability Ratings and Research) with the review of the Directive. In ad-dition, a public consultation on the review of the Directive was concluded on 11 June 2020 (12). Moreover, the Commission launched a further public consultation on a renewed sustainable finance strategy for the following month (13), which includes the topics of sustainable corporate governance. Linked to this reform initiative there is the ambitious goal of issuing new, uniform European non-fi-nancial reporting standards, announced by Commission’s Vice-President Valdis Dombrovskis at the conference on the implementation of the Green Deal: Fi-nancing the Transition (14).
Finally, on 21 April 2021, the European Commission adopted the draft CSRD (Corporate Sustainability Reporting Directive) on new corporate sustainability reporting. The Commission’s proposal, which would amend the current non-financial reporting requirements set out in Directive 2014/95 (NFRD), is still on stand-by as it is subject to the expected approval by the European Parliament. In essence, the draft proposed by the Commission in terms of timing requires that EU Member States transpose the CSRD by 1/12/2022 and that its provisions apply by 1/1/2023 (for large corporations) or 1/1/2026 (for SMEs). In terms of
(9) The appendix to this volume contains the document produced by First Cisl as a contri-bution to proposed legislation. Some of the policy recommendations contained in the con-clusions of this volume and addressed to the European Commission are taken from that document.
(10) Executive Summary of the Fitness Check of EU Supervisory Reporting Requirements.
(11) See FINANCIAL STABILITY,FINANCIAL SERVICES AND CAPITAL MARKETS UNION, Re-sults of the fitness check of supervisory reporting requirements in EU financial services legislation, in ec.eu-ropa.eu, 7 November 2019.
(12) Cf. COMMISSIONE EUROPEA, Informativa sulla sostenibilità delle imprese, in ec.europa.eu;
EUROPEAN COMMISSION, Consultation Document Review of the Non-Financial Reporting Directive, 2020.
(13) See EUROPEAN COMMISSION, Consultation on the renewed sustainable finance strategy, in ec.eu-ropa.eu, 8 April 2020.
(14) See EUROPEAN COMMISSION, Remarks by Executive Vice-President Dombrovskis at the Confer-ence on implementing the European Green Deal: Financing the Transition, in ec.europa.eu, 28 January 2020.
content, the draft incorporates the findings of the public consultations, which highlighted that current disclosure practices do not meet investors’ growing de-mand for data and information, both qualitatively and quantitatively, and that the information is not sufficiently comparable or reliable. In response to these needs, the draft Directive:
a) widens the range of recipients of the reporting obligation, extending it to all large companies (whether listed or unlisted) and, from 1 January 2026, also to listed SMEs (excluding micro-enterprises);
b) intensifies the substance of the disclosure requirements, which cover the company’s “impacts on sustainability issues”, i.e., environmental, social and governance profiles. Sustainability reports will in fact have to indicate:
• the business model and strategy prepared for sustainability-related risks;
• the opportunities for the company related to sustainability;
• the company’s plans to ensure that the business model and strat-egy are compatible with the transition towards a sustainable econ-omy and the containment of global warming;
• the ways in which the company’s business model and strategy take into account stakeholder interests and the company’s impacts on sustainability profiles;
• the implementation of the company’s sustainability strategy;
• a description of the sustainability objectives set by the company and the progress made towards achieving these objectives;
• a description of the role of management and supervisory bodies in sustainability issues;
• a description of the company’s policies on sustainability;
• a description of the company’s sustainability due diligence pro-cess;
• the main actual or potential negative impacts related to the com-pany’s value chain, including operations, products and services, business relationships and supply chain;
• any action taken, and the result of said action, to prevent, mitigate or remedy the actual or potential adverse impacts;
• a description of the main risks to the company related to sustain-ability, including the main responsibilities of the company, and how these risks are managed;
• indicators related to the above information.
The Commission’s proposal also provides for the adoption of specific EU re-porting standards developed by the European Financial Rere-porting Advisory Group (EFRAG) in order to provide investors and stakeholders with homoge-neous and comparable information, and audit requirements to ensure that the
information reported is accurate and reliable. In particular, it introduces: 1) ver-ification (assurance) of the information reported; 2) more detailed reporting re-quirements; 3) the obligation to report according to mandatory EU sustainability reporting standards; 4) a digital ‘tag’ of the information reported, so that it can be read by the IT system and flow into the single European access point. The first set of standards will be adopted by October 2022.
The definition of a common reporting methodology at EU level, against the cur-rent use of diffecur-rent standards and frameworks available for reporting, will also ensure an alignment with the EU regulatory framework in the ESG area and, in particular, with the Sustainable Finance Disclosure Regulation (SFDR) 2019/2088 and the Taxonomy Regulation 2020/852.
In the writer’s opinion, the effort to homogenise information and unify the keys to interpreting is positive. In particular, the intention of the EU legislator to apply the principle of ‘double materiality’ in the disclosure obligation imposed on com-panies is praiseworthy: it identifies two directions in which to frame sustainability issues: how they affect the financial performance of a company and its value in the long term, and how the company’s activities have an external impact on the society as a whole.
Less interesting is the prevailing focus of non-financial information on aspects of ecological transition as such (the so-called European Green Deal), rather than on aspects of social transition in terms of inclusive employment and solidarity.
In short, there is more attention to the environmental economy than to people, and even less attention is paid to people with disabilities. In any case, we would like to point out that Art. 19, letter b, of the proposal also specifies the so-called
‘Sustainability Reporting Standards’. Sustainability reporting standards will spec-ify, among other things, the information that companies must provide on social factors, including information on: “(i) equal opportunities, including gender equality and equal pay for equal work, training and skills development, and em-ployment and inclusion of persons with disabilities; (ii) working conditions, in-cluding safe and adaptable employment, wages, social dialogue, collective bar-gaining and employee involvement, work-life balance and a healthy, safe and well adapted working environment”. The issue we wish to explore here, however, is not particularly the revision of the directive but its practical implementation by national legislations and, above all, by large transnational companies.
What is missing, in the perspective of the EU reform, is the declination of a composite principle of ‘triple materiality’, which associates to the previous two directions of the information obligation also a third reporting guideline: i.e., how business choices achieve (starting from within the company itself) the objective of full relational inclusion and full employment of people, regardless of the dif-ferent and changing skills they can use throughout their life cycle. This would mean overcoming the productive efficiency of the new, prevailing digital Tay-lorism, with a view to corporate social responsibility towards the civil
community. Unfortunately, the draft directive is still incomplete in this respect, and the considerations put forward here are ‘de jure condendo’.
It is therefore necessary to ask the following five questions, which also represent the scope of the European Commission-funded project that forms the back-ground to this monography:
1. Which ‘diversity’ has been taken as a criterion for reporting? Is diversity an object of management or is it instead a different business manage-ment method? How has it been extended to include disability?
2. What social ‘inclusion’ of people with disabilities has been imple-mented by companies? Has it been extended to participation in deci-sion-making processes?
3. What disability-related legal protection has been reported? Just the health and safety one, summarised in reasonable accommodation? Or a broader one, aimed at re-engineering the corporate governance struc-ture to make it open and accessible to all people with disabilities?
4. What ‘compliance’ (information of coherence with declared commit-ments) is provided by companies? Are they mere non-financial state-ments or are there also tools to verify and measure the effectiveness of the declared measures?
5. What effective negotiating space has been granted in the non-financial information to industrial relations, collective bargaining and bilateral-ism? How has this space been exercised? Is it or can it be described and reported in a shared way between companies and trade unions, since it is a common matter? In the case of European multinationals with an EWC: can non-financial information concerning the holding be sup-ported by joint texts on annual reporting of activities?
1.13. The New ISO 30145:2021 in Terms of Sustainability Reporting