Regulatory updates: CSRD and SFDR

As of 5 January, the EU’s new Corporate Sustainability Reporting Directive (CSRD) entered into application. The directive will require 50,000 large public-interest companies and listed companies, including banks and insurance companies, to disclose their environmental, social and governance impact. For now this concerns only large companies but SME’s will follow.

Companies will have to start applying the new rules in 2024, and report on the results the year after. Their reports will need to follow the European Sustainability Reporting Standards, which are currently being drafted by the European Financial Reporting Advisory Group. They will be in line with key European documents such as the EU taxonomy and the EU Green Deal. The Commission expects to adopt a first version of the standards in a few months.

Meanwhile, the EU’s Sustainable Finance Disclosure Regulation (SFDR) entered its level-2 phase on 1 January, with its Regulatory Technical Standards (RTS). These standards aim to protect end investors by improving disclosure to them on the adverse ESG impacts of investment decisions, and on the sustainability of financial products. Firms and financial players who fall under the SFDR have to explain why they label financial products ‘Article 8’ or ‘Article 9’, and have to strictly comply with the Regulatory Technical Standards’ detailed annual reporting requirements. All of this will hopefully enhance transparency and help prevent greenwashing.

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