The new Corporate Sustainability Reports: the next generation of Non-Financial Information

The new regulatory framework for the new Corporate Sustainability Reports builds on the lessons learned, bringing greater rigor and demand to the quality and standardization of corporate data, assuming that financial data and data related to sustainability and environmental respect have the same rank.

Background: Non-financial Information Statements (EINF) as a result of the 2008 crisis

A key element that explains the 2008 economic crisis is none other than the credibility lost on the part of certain companies. Numerous key corporations and strategic economic sectors lost the trust of society (and of the so-called “investors”) as a result of the situations of unsustainability that were hidden under their reports and accounts, which hindered the timely detection of strategic problems.

As a result of this context, and with some lessons learned, it appeared as the culmination text of a community development process (Directive 2004/109/EC; Directive 2006/43/EC; Directive 2013/34/EU and Regulation 537/2014) the Directive 2014/95/EU related to Non-Financial Information, which, in Spain, was last transposed with the Law 11/2018 (one of the most advanced compared to other countries).

The new legal framework of Non-Financial Information States—in response to demands for transparency on the part of markets and society—was clear in establishing a powerful principle in the business environment, installing the idea that it's not just how much money you earn that matters, but how you earn that money. This is how the EINFs were born, in which companies of certain sizes are obliged to include information related to environmental, social, personnel, human rights and the fight against corruption and bribery.

Learning lessons and sophisticated mechanisms: the new non-financial reporting directive

The expectations raised by Directive 2014/95/EU (in Spain, through the above-mentioned Law that transposed the community mandate) in relation to the possibilities of improving the quality of environmental and social information of companies, have been gradually being shattered. Although it was a first major breakthrough in the field, the incipient regulation lacks adequate oversight mechanisms, lacks specific criteria on the information to be reported, and is limited in terms of the reliability and comparability of the information presented.

As can be seen from the analyses carried out by a wide variety of recognized organizations (including corrective reports related to Non-Financial Information in the banking sector prepared by the International Institute of Law and Environment), these ingredients have caused the ineffectiveness and limited utility of EINF, giving rise to their possibilities as a weapon of Greenwashing and underpinning citizen disaffection and the loss of credibility on the part of companies.

However, on January 5, the new Directive 2022/2464 of the European Parliament and the Council, concerning the presentation of information on sustainability by companies. The so-called Corporate Sustainability Reporting Directive (CSRD) has been developed in line with the objectives of the new Green Deal of the EU, trying to correct existing deficiencies by providing completeness, rigor and control to data through an innovation never found so far in the field of CSR: the equalization in importance and range of financial and non-financial data. The new Directive is in addition to the recent measure taken by the European Commission to develop a standardized and homogeneous reporting standard, favoring the comparability of reports, being aligned with the requirements imposed by the Sustainable Finance Disclosure Regulation and with the European Taxonomy.

Corporate Sustainability Reports and their importance for all types of organizations

There are many new features introduced in the new text (we could mention those related to new guarantees of the required data, the greater responsibility of the Board of Directors of companies, the requirements to report on their value chain or its alignment with the taxonomy of the EU) however, we want to emphasize here the keys to what the new Corporate Sustainability Report will entail in the areas that we understand to be key.

According to the new approach that will be taken by Corporate Sustainability Reports, companies should focus on evaluating the sustainability risk affecting the company, as well as the company's impact on society and the environment. These data, high in rank and with greater guarantees, should include information on the comprehensive sustainability of the company, highlighting, among others, data relating to circular economy, the Use of resources, the water, the Contamination emitted, the adaptation to climate change, as well as measures relating to equality, working conditions, inclusion, ethical values and risk management.

Among those novelties brought by the new regulatory framework is the extension of the scope of application: in Spain, the current framework requires more than 11,000 companies; the one that inaugurates the new Directive will force almost 50,000 (some of which, the first of them based on established implementation criteria, will be required to report on data for 2024).

However, beyond the size of the company and the requirement indicated by the latest regulations, since Environmental Ideas we want to point out the vital importance that Corporate Sustainability Reports will acquire for any type of entity that wants to participate in the social and financial scenarios that take place. In addition, we already know that what today is only legally mandatory for a few, will no longer be socially optional for the majority tomorrow.

Fortunately for the environment, but also for consumers, workers and companies, the wave of sustainability and comprehensive and reliable reports is coming.

If you want to anticipate community obligations in relation to Corporate Sustainability Reports, if you need to learn about the benefits offered by Due Diligence And the compliance environmental, or you simply want to take advantage of opportunities to develop social and environmental responsibility in your company or entity, get in touch with the Ideas MedioAmbiental team.