That strategy aims to put Europes biodiversity on a path to recovery by 2030. That audit committee should be assigned with certain tasks with regard to the assurance of sustainability reporting. The scope and precise applicability of the CSRD is particularly complex and will require detailed analysis; complete a gap analysis and assess the overlap of CSRD with other EU and US, UK, international and other ESG reporting rules; look to the human rights and environmental due diligence requirements contained in the draft EU Directive on Corporate Sustainability Due Diligence which are indicative of emerging regulatory and stakeholder expectations (. The coordination measures prescribed by Articles 19a, 29a, 29d, 30 and33, point (aa) of the second subparagraph of Article34(1), Article34(2) and(3) and Article51 of this Directive shall also apply to the laws, regulations and administrative provisions of the Member States relating to the following undertakings regardless of their legal form, provided that those undertakings are large undertakings, or small and medium-sized undertakings, except micro undertakings, which are public-interest entities as defined in point (a) of point (1) of Article2 of this Directive: insurance undertakings within the meaning of Article2(1) of Council Directive 91/674/EEC(*1); credit institutions as defined in point (1) of Article4(1) of Regulation (EU) No575/2013 of the European Parliament and of the Council(*2). The required disclosures will go beyond environmental and climate change reporting to include social and governance matters (for example, respect for employee and human rights, anti-corruption and bribery, corporate governance and diversity and inclusion). It also hinders the findability and accessibility of information for users, especially investors, who are interested in both financial and sustainability information. After transmission of the draft legislative act to the national parliaments. In November 2022, the European Financial Reporting Advisory Group (EFRAG) published the draft EU sustainability reporting standards that will be used by companies once adopted by the European Commission (expected in June 2023). The Corporate Sustainability Reporting Directive (CSRD) is a new, important piece of European regulation requiring companies in the EU to report on sustainability aspects including the environment, human rights and corporate governance. Small and medium-sized undertakings whose securities are admitted to trading on a regulated market in the Union should be given the possibility of reporting in accordance with standards that are proportionate to their capacities and resources, and relevant to the scale and complexity of their activities. The Taxonomy Regulation has Undertakings shall report the process carried out to identify the information that they have included in the management report in accordance with paragraph 1 of this Article. Points (a) and (d) are without prejudice to the participation of public bodies and national standard-setting organisations in the technical work of EFRAG. Information disclosed in accordance with Article8 of Regulation (EU) 2020/852 about the amount of capital expenditure (CapEx) or operating expenditure (OpEx) associated with taxonomy-aligned activities could support financial and investment plans related to such plans where appropriate. Other relevant Union law, including Directive 2010/75/EU of the European Parliament and of the Council(29), and other requirements laid down in Union law for undertakings as regards directors duties and due diligence should also be taken into account. Article19a(1) and Article29a(1) of Directive 2013/34/EU require undertakings to provide a clear and reasoned explanation for not pursuing policies in relation to one or more of the matters listed in those Articles, where the undertaking does not do so. We recognise that new sustainability reporting requirements in the EU, US, UK and other jurisdictions are top of the agenda for many institutions. (18)Commission Regulation (EC) No1569/2007 of 21December 2007 establishing a mechanism for the determination of equivalence of accounting standards applied by third country issuers of securities pursuant to Directives 2003/71/EC and2004/109/EC of the European Parliament and of the Council (OJL340, 22.12.2007, p.66). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts. Participation in EFRAGs work at technical level should be conditional on expertise in sustainability reporting and should not be conditional on any financial contribution, without prejudice to the participation of public bodies and national standard-setting organisations in that work. (12)Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27November 2019 on the prudential requirements of investment firms and amending Regulations (EU) No1093/2010, (EU) No575/2013, (EU) No600/2014 and (EU) No806/2014 (OJL314, 5.12.2019, p.1). Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 50 and114 thereof. (*1)Council Directive 91/674/EEC of 19December 1991 on the annual accounts and consolidated accounts of insurance undertakings (OJL374, 31.12.1991, p. inform other Member States about its decision to supervise the assurance of sustainability reporting carried out by independent assurance services providers established in other Member States. To realise such benefits, the sustainability information disclosed in the annual reports of undertakings first has to reach two primary groups of users. In any event, the name(s) of the person(s) involved shall be known to the relevant competent authorities. It will therefore help to protect and enhance the access of smaller undertakings whose securities are admitted to trading on a regulated market in the Union to financial capital, and avoid discrimination against such undertakings on the part of financial market participants. ", (*6)Council Directive 86/635/EEC of 8December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions (OJL372,31.12.1986, p.1).;". In addition, it should be noted that the CSRD is an EU Directive without direct effect that needs to be transposed into local law. Users need reliable information regarding offsets that addresses concerns regarding possible double counting and overestimations, given the risks to the achievement of climate-related targets that double counting and overestimations can create. The CSRD is, for example, different in many respects from the proposed SEC climate rules and from UK requirements (see, for further detail,, our briefingsSEC Proposes Climate Change Disclosure Rules Applicable to Public Companies | Eye on ESGandThe UKs FCA and FRC review the quality of companies TCFD disclosures | Eye on ESG). Directive 2014/95/EU of the European Parliament and of the Council(16) amended Directive 2013/34/EU as regards disclosure of non-financial information by certain large undertakings and groups. In addition, financial market participants also need information from those large undertakings whose securities are not admitted to trading on a regulated market in the Union. It is necessary, however, to ensure that sustainability information is easily accessible for users, and to ensure that there is transparency as regards which parent undertaking of the exempted subsidiary undertaking is reporting at group level. 9. (39)Directive 2009/138/EC of the European Parliament and of the Council of 25November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (SolvencyII) (OJL335, 17.12.2009, p.1). Member States may decide not to lay down rules for administrative sanctions for infringements which are already subject to national criminal law. That increase in demand is driven by the changing nature of risks to undertakings and growing investor awareness of the financial implications of those risks. In this respect, all large undertakings should be subject to the same requirements to report sustainability information publicly. Member States should consider introducing measures to support small and medium-sized undertakings in applying the sustainability reporting standards. When carrying out the assurance of sustainability reporting, statutory auditors should be required to devote sufficient time and assign sufficient resources and expertise in order to carry out their duties appropriately. Sustainability reporting standards that address training and skills development should specify, amongst other things, information to be reported about the proportion and breakdown of workers participating in training. The definition of the term sustainability matters in Directive 2013/34/EU as amended by this amending Directive should therefore cover environmental, social and human rights, and governance factors, and incorporate the definition of the term sustainability factors laid down in Regulation (EU) 2019/2088. Those Guidelines on reporting climate-related information explicitly incorporated the recommendations of the Task Force on Climate-related Financial Disclosures. Their opinion should be communicated, where applicable, to the relevant administrative, management or supervisory bodies. The aggregation of multiple investment decisions that do not take adequate account of sustainability-related risks has the potential to create systemic risks that threaten financial stability. The sustainability reporting standards shall, taking into account the subject matter of a particular sustainability reporting standard: specify the information that undertakings are to disclose about the following environmental factors: climate change mitigation, including as regards scope 1, scope 2 and, where relevant, scope 3 greenhouse gas emissions; specify the information that undertakings are to disclose about the following social and human rights factors: equal treatment and opportunities for all, including gender equality and equal pay for work of equal value, training and skills development, the employment and inclusion of people with disabilities, measures against violence and harassment in the workplace, and diversity; working conditions, including secure employment, working time, adequate wages, social dialogue, freedom of association, existence of works councils, collective bargaining, including the proportion of workers covered by collective agreements, the information, consultation and participation rights of workers, work-life balance, and health and safety; respect for the human rights, fundamental freedoms, democratic principles and standards established in the International Bill of Human Rights and other core UN human rights conventions, including the UN Convention on the Rights of Persons with Disabilities, the UN Declaration on the Rights of Indigenous Peoples, the International Labour Organizations Declaration on Fundamental Principles and Rights at Work and the fundamental conventions of the International Labour Organization, the European Convention for the protection of Human Rights and Fundamental Freedoms, the European Social Charter, and the Charter of Fundamental Rights of the European Union; specify the information that undertakings are to disclose about the following governance factors: the role of the undertakings administrative, management and supervisory bodies with regard to sustainability matters, and their composition, as well as their expertise and skills in relation to fulfilling that role or the access such bodies have to such expertise and skills; the main features of the undertakings internal control and risk management systems, in relation to the sustainability reporting and decision-making process; business ethics and corporate culture, including anti-corruption and anti-bribery, the protection of whistleblowers and animal welfare; activities and commitments of the undertaking related to exerting its political influence, including its lobbying activities; the management and quality of relationships with customers, suppliers and communities affected by the activities of the undertaking, including payment practices, especially with regard to late payment to small and medium-sized undertakings. 3. The CSRD will create new, detailed sustainability reporting requirements and will significantly expand the number of EU and non-EU companies subject to the EU sustainability reporting framework. On 10 November 2022, the EU Parliament adopted the Corporate Sustainability Reporting Directive (CSRD). Successful reporting needs a holistic approach that involves the entire organization. To ensure consistency with international instruments such as the UN Guiding Principles on Business and Human Rights: Implementing the United Nations Protect, Respect and Remedy Framework (UN Guiding Principles on Business and Human Rights), the OECD Guidelines for Multinational Enterprises and the OECD Due Diligence Guidance for Responsible Business Conduct, the due diligence disclosure requirements should be specified in greater detail than is currently the case in point (b) of Article19a(1) and point (b) of Article29a(1) of Directive 2013/34/EU. Article19a(1) of Directive 2013/34/EU does not contain explicit references to other reporting areas that users of information consider relevant, some of which align with disclosures included in international frameworks, including the recommendations of the Task Force on Climate-related Financial Disclosures. Directive 2006/43/EC requires Member States to put appropriate rules in place to avoid the fees on the statutory audit being influenced or determined by the provision of additional services to the audited entity or being based on any form of contingency. If undertakings carried out better sustainability reporting, the ultimate beneficiaries would be individual citizens and savers, including trade unions and workers representatives who would be adequately informed and therefore able to better engage in social dialogue. Sustainability reporting standards for third-country undertakings. Achieving a climate neutral economy requires the alignment of GHG accounting and offsetting standards. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with Articles 1 to 3 of this Directive by 6July 2024. For the purposes of the first subparagraph of this paragraph, insurance undertakings referred to in point (a) of the first subparagraph of Article1(3) of this Directive that are part of a group, on the basis of financial relationships referred to in point (c)(ii) of Article212(1) of Directive 2009/138/EC, and which are subject to group supervision in accordance with points (a) to (c) of Article213(2) of that Directive shall be treated as subsidiary undertakings of the parent undertaking of that group. They should also take account of other reporting requirements in Directive 2013/34/EU that are not directly related to sustainability, with the aim of providing the users of the reported information with a better understanding of the development, performance, position and impact of the undertaking, by maximising the links between the sustainability information and other information reported in accordance with Directive 2013/34/EU. Member States shall apply the measures necessary to comply with Article1, with the exception of point (14): for financial years starting on or after 1January 2024: to large undertakings within the meaning of Article3(4) of Directive 2013/34/EU which are public-interest entities as defined in point (1) of Article2 of that Directive exceeding on their balance sheet dates the average number of 500 employees during the financial year; to public-interest entities as defined in point (1) of Article2 of Directive 2013/34/EU which are parent undertakings of a large group within the meaning of Article3(7) of that Directive exceeding on its balance sheet dates, on a consolidated basis, the average number of 500 employees during the financial year; for financial years starting on or after 1January 2025: to large undertakings within the meaning of Article3(4) of Directive 2013/34/EU, other than those referred to in point (a)(i) of this subparagraph; to parent undertakings of a large group within the meaning of Article3(7) of Directive 2013/34/EU, other than those referred to in point (a)(ii) of this subparagraph; for financial years starting on or after 1January 2026: to small and medium-sized undertakings within the meaning of Article3(2) and(3) of Directive 2013/34/EU which are public-interest entities as defined in point (a) of point (1) of Article2 of that Directive and which are not micro-undertakings as defined in Article3(1) of that Directive; to small and non-complex institutions defined in point (145) of Article4(1) of Regulation (EU) No575/2013, provided they are large undertakings within the meaning of Article3(4) of Directive 2013/34/EU or that they are small and medium sized undertakings within the meaning of Article3(2) and(3) of that Directive which are public-interest entities as defined in point (a) of point (1) of Article2 of that Directive and which are not micro-undertakings as defined in Article3(1) of that Directive; to captive insurance undertakings defined in point (2) of Article13 of Directive 2009/138/EC of the European Parliament and of the Council(39), and captive reinsurance undertakings defined in point (5) of Article13 of that Directive, provided that they are large undertakings within the meaning of Article3(4) of Directive 2013/34/EU or that they are small and medium sized undertakings within the meaning of Article3(2) and(3) of that Directive which are public-interest entities as defined in point (a) of point (1) of Article2 of that Directive and which are not micro-undertakings as defined in Article3(1) of that Directive. In particular, EFRAG has been asked to look at rules for detailed disclosure requirements in respect of the EU taxonomy environmental objectives, social and human rights disclosures and sustainability governance disclosures. A natural person may, in addition to the approval to carry out statutory audits provided for in paragraph 1 of this Article, be approved to carry out the assurance of sustainability reporting when the additional specific requirements of Article7(2), Article8(3), the second subparagraph of Article10(1) and the fourth subparagraph of Article14(2) of this Directive are met. Please get in touch if you would like to discuss how we can help. 5. This new directive will have implications beyond the EU. 38). paragraphs 4 to 6 are replaced by the following: 4. Part of that increase is the logical consequence of previously adopted Union legislation, notably Regulations (EU) 2019/2088 and (EU) 2020/852. In this context, the implementing acts adopted by the Commission pursuant to point (i) of the first subparagraph of Article23(4) and the fourth subparagraph of Article23(4) of Directive 2004/109/EC establishing a mechanism for the determination of equivalence of standards should be used to determine whether to exempt subsidiary undertakings of third-country parent undertakings under the regime of Directive 2013/34/EU. On 23 February 2022, the Commission adopted a proposal for a Directive on corporate sustainability due diligence. Articles 19a and29a of Directive 2013/34/EU apply to large undertakings that are public-interest entities with an average number of employees in excess of 500, and to public-interest entities that are parent undertakings of a large group with an average number of employees in excess of 500 on a consolidated basis, respectively. The sustainability reporting standards should also specify the information that undertakings should disclose with regard to the human rights, fundamental freedoms, democratic principles and standards established in the International Bill of Human Rights and other core UN human rights conventions, including the UN Convention on the Rights of Persons with Disabilities, the UN Declaration on the Rights of Indigenous Peoples, the UN Convention on the Rights of the Child, the ILO Declaration on Fundamental Principles and Rights at Work, the fundamental conventions of the ILO, the European Convention for the Protection of Human Rights and Fundamental Freedoms, the European Social Charter, and the Charter of Fundamental Rights of the European Union. The exemption laid down in paragraph 9 shall also apply to public-interest entities subject to the requirements of this Article, with the exception of large undertakings which are public-interest entities defined in point (a) of point (1) of Article2 of this Directive. Union standards should take account of any sustainability reporting standards developed under the auspices of International Financial Reporting Standards Foundation. The assurance profession distinguishes between limited assurance engagements and reasonable assurance engagements. The first subparagraph shall only apply to large subsidiary undertakings and to small and medium-sized subsidiary undertakings, except micro undertakings, which are public-interest entities as defined in point (a) of point (1) of Article2. As a result, the focus on sustainability is no longer optional or voluntary, but mandatory, and must be embedded in the companys long-term vision and strategy, and must also be applied to its policies; implementation plans in relation to the transition to a sustainable economy, measures taken to limit global warming in line with the Paris Agreement and to achieve climate neutrality by 2050 and exposure to coal, oil and gas-related activities; sustainability matters that affect the company and the impact of the company on sustainability matters (the so called double materiality perspective); policies in relation to sustainability (including incentive schemes linked to sustainability matters); and. European Parliament adopts CSRD 10 Nov 2022 The European Parliament has today adopted the Corporate Sustainability Reporting Directive (CSRD) proposed by the European Commission (EC) in April 2021. Some natural capital accounting methodologies seek to assign a monetary value to the environmental impacts of companies activities, which may help users of sustainability information to better understand such impacts. Member States shall provide that the branches of third-country undertakings are responsible for ensuring, to the best of their knowledge and ability, that their sustainability report is drawn up in accordance with Article40a, and that that report is published and made accessible in accordance with Article40d. Sustainability reporting standards that address diversity should specify, amongst other things, information to be reported on gender diversity at top management and the number of members of the under-represented sex on their boards. Articles 19a and29a of Directive 2013/34/EU should therefore specify that the sustainability information reported is to include forward-looking and retrospective information and both qualitative and quantitative information. As a transitional measure, until 31December 2025, the persons who carry out quality assurance reviews of the assurance of sustainability reporting should be exempted from the requirement to have relevant experience in sustainability reporting and in the assurance of sustainability reporting or in other sustainability-related services. A9-0059/2022. (*23)Directive 2013/34/EU of the European Parliament and of the Council of 26June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and83/349/EEC (OJL182, 29.6.2013, p.19).;". Such criteria, which are applicable to all third countries, shall be used by Member States when assessing equivalence at national level.; The power to adopt delegated acts referred to in Article26a(2) shall be conferred on the Commission for an indeterminate period of time.; 3. Therefore, there is no need to maintain such different treatment of policies in that Directive. It should be ensured that the requirements imposed on auditors as regards the statutory audit and the assurance of sustainability reporting they carry out are consistent. 1. Nonetheless, certain information on intangible resources is intrinsic to sustainability matters, and should therefore be part of sustainability reporting. The introduction of such a requirement will help to ensure that financial market participants can include smaller undertakings whose securities are admitted to trading on a regulated market in the Union in investment portfolios, on the basis that they report the sustainability information that financial market participants need. The Member State by whose national law the exempted subsidiary undertaking is governed may require that the consolidated management report or, where applicable, the consolidated sustainability report, of the parent undertaking is published in a language that that Member State accepts, and that any necessary translation into such language is provided. Sustainability reporting standards shall specify disclosures on value chains that are proportionate and relevant to the capacities and the characteristics of undertakings in value chains, and to the scale and complexity of their activities, especially those of undertakings that are not subject to the sustainability reporting requirements in Article19a or 29a. Thursday, 10 November 2022 - Brussels. In its conclusions of 5December 2019 on the deepening of the Capital Markets Union, the Council stressed the importance of reliable, comparable and relevant information on sustainability risks, opportunities and impacts, and called on the Commission to consider the development of a European non-financial reporting standard. The Transparent Project sponsored under the Programme for the Environment and Climate Action (LIFE programme) established by Regulation (EU) 2021/783 of the European Parliament and of the Council(30) is developing the first natural capital accounting methodology, which will make existing methods easier to compare and more transparent while lowering the threshold for companies to adopt and use the systems in support of future-proofing their business. In a limited assurance engagement, the auditor performs fewer tests than in a reasonable assurance engagement. Corporate Sustainability Reporting Directive (CSRD) explained This November the European Parliament adopted CSRD reporting which means the EU is In order for the statutory auditor to also be approved to carry out the assurance of sustainability reporting, the test of theoretical knowledge referred to in paragraph 1 shall also cover at least the following subjects: legal requirements and standards relating to the preparation of annual and consolidated sustainability reporting; due diligence processes with regard to sustainability matters; legal requirements and assurance standards for the sustainability reporting referred to in Article26a.; in Article10(1), the following subparagraph is added: In order for the statutory auditor or the trainee to also be approved to carry out the assurance of sustainability reporting, at least eight months of the practical training referred to in the first subparagraph shall be on the assurance of annual and consolidated sustainability reporting or on other sustainability-related services.; Combination of practical training and theoretical instruction. Reporting requirements provided for in this amending Directive should therefore be without prejudice to Directive (EU) 2016/943. 4. Musonda Kapotwe and Peter Pears are Partners and Marcel Hrauf is Counsel at Mayer Brown LLP. At least part of that examination shall be written. Undertakings subject to the requirements of Article19a of this Directive shall prepare their management report in the electronic reporting format specified in Article3 of Commission Delegated Regulation (EU) 2019/815(*20) and shall mark up their sustainability reporting, including the disclosures provided for in Article8 of Regulation (EU) 2020/852, in accordance with the electronic reporting format specified in that Delegated Regulation. That collective responsibility should be extended to the digitalisation requirements laid down in Delegated Regulation (EU) 2019/815, to the requirement to comply with Union sustainability reporting standards and to the requirement to mark up sustainability reporting. Sustainability reporting standards should specify the information that undertakings should disclose on governance factors. Directive 2013/34/EU does not require the disclosure of information on intangible resources other than intangible assets recognised in the balance sheet. 2. Article23 of Directive 2013/34/EU exempts parent undertakings from the obligation to prepare consolidated financial statements and a consolidated management report where parent undertakings are subsidiary undertakings of another parent undertaking that complies with that obligation. When adopting sector-specific sustainability reporting standards, the Commission should ensure the information specified by those sustainability reporting standards is proportionate to the scale of the risks and impacts related to sustainability matters specific to each sector, taking account of the fact that the risks and impacts of some sectors are higher than for others. 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