The new sustainability statement

Tina Whitington Date published: Mar 04, 24

The EU Corporate Social Responsibility Directive (CSRD) brings in new rules for the preparation of a sustainability statement.  Although these rules predominantly apply to EU member states, they will impact on other entities operating within the EU.

Who will the new sustainability statement affect?

From 1^st January 2024, large public interest entities (or large public interest groups) established in EU member states with more than 500 employees on average during the financial year are required to prepare a sustainability statement.  A large entity is defined as one which meets 2 out of the 3 criteria below (for groups, this is on a consolidated basis).

• A balance sheet total of more than 20m Euros
• A net turnover of more than 40m Euros
• More than 250 employees on average during the financial year

For large public interest entities (or large public interest groups) established in EU member states with less than 500 employees, the statement is required from 1^st January 2025.

All other public interest entities established in EU member states (except for micro entities) must prepare the statement from 1^st January 2026.  Non-large entities may limit their sustainability report as described below.  During the first 2 years of application, they may choose not to present the report as long as they briefly state why it is not provided.

From 1^st January 2028, a limited sustainability statement must be prepared if you are an EU subsidiary of a non-EU parent entity with a group turnover of more than 150m Euros, or an EU branch of a non-EU entity where the branch turnover is more than 40m Euros and the group turnover is more than 150m Euros.

What does the new sustainability statement require?

Entities must include in the management report information necessary to understand the undertaking’s impacts on sustainability matters, and information necessary to understand how sustainability matters affect the undertaking’s development, performance and position.  For detailed requirements, see below.

The statement should contain information about the entity’s own operations as well as its value chain, including products and services, business relationships and supply chain.  However, if this information is unavailable, the entity can omit this information for the first 3 years of application provided it explains the efforts made to obtain the necessary information about its value chain, the reasons why not all of the necessary information could be obtained, and its plans to obtain the necessary information in the future.

Member states may also allow information relating to impending developments or matters in the course of negotiation to be omitted in exceptional cases.

In order to comply with this statement, the entity must also apply the European Sustainability Reporting Standards (ESRS) covering the following topics:

• Climate change
• Pollution
• Water and marine resources
• Biodiversity and ecosystems
• Resource use and circular economy
• Own workforce
• Workers in the value chain
• Affected communities
• Consumers and end-users
• Business conduct
  
  

What does the new sustainability statement mean for companies?

The first step is to consider whether you are required to prepare this statement.  This is especially important for those entities outside of the EU where news of these changes may not have been sufficiently highlighted.  Our disclose checklists include key tailoring questions regarding entity size and type to ensure the requirements for this statement are included in the normal process of ensuring financial statement disclosure compliance.

Some companies may already be preparing similar information to comply with corporate governance, local legislation and/or recently released International Sustainability Standards.  However, careful consideration must be given to the additional requirements needed to comply with this statement, as well as the information already provided.

Detailed requirements of the new sustainability

The more detailed requirements are as follows:

• A brief description of the undertaking’s business model and strategy, including:
  • The resilience of the undertaking’s business model and strategy in relation to risks related to sustainability matters (not required for EU sub of non-EU parent or EU branch)
  • The opportunities for the undertaking related to sustainability matters (not required for EU sub of non-EU parent or EU branch)
  • The plans of the undertaking, including implementing actions and related financial and investment plans, to ensure that its business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1,5 °C and, where relevant, the exposure of the undertaking to coal-, oil- and gas-related activities
  • How the undertaking’s business model and strategy take account of the interests of the undertaking’s stakeholders and of the impacts of the undertaking on sustainability matters
  • How the undertaking’s strategy has been implemented with regard to sustainability matters
• A description of the time-bound targets related to sustainability matters set by the undertaking, including, where appropriate:
  • Absolute greenhouse gas emission reduction targets at a minimum for 2030 and 2050
  • A description of the progress the undertaking has made towards achieving those targets
  • A statement of whether the undertaking’s targets related to environmental factors are based on conclusive scientific evidence
• A description of the role of the administrative, management and supervisory bodies with regard to sustainability matters, and of their expertise and skills in relation to fulfilling that role or the access such bodies have to such expertise and skills
• A description of the undertaking’s policies in relation to sustainability matters
• Information about the existence of incentive schemes linked to sustainability matters which are offered to members of the administrative, management and supervisory bodies
• A description of:
  • The due diligence process implemented by the undertaking with regard to sustainability matters, and, where applicable, in line with Union requirements on undertakings to conduct a due diligence process
  • The principal actual or potential adverse impacts connected with the undertaking’s own operations and with its value chain, including its products and services, its business relationships and its supply chain, actions taken to identify and monitor those impacts, and other adverse impacts which the undertaking is required to identify pursuant to other Union requirements on undertakings to conduct a due diligence process
  • Any actions taken by the undertaking to prevent, mitigate, remediate or bring an end to actual or potential adverse impacts, and the result of such actions
• A description of the principal risks to the undertaking related to sustainability matters, including a description of the undertaking’s principal dependencies on those matters, and how the undertaking manages those risks (not required for EU sub of non-EU parent or EU branch)
• Indicators relevant to the disclosures above (not required for EU sub of non-EU parent or EU branch)

The limited report available to non-large entities referred to above would include the following:

• A brief description of the undertaking’s business model and strategy
• A description of the undertaking’s policies in relation to sustainability matters
• the principal actual or potential adverse impacts of the undertaking on sustainability matters and any actions taken to identify, monitor, prevent, mitigate or remediate such actual or potential adverse impacts
• The principal risks to the undertaking related to sustainability matters and how the undertaking manages those risks
• Key indicators necessary for the disclosures referred to above

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