EU approves new sustainability reporting rules for multinationals

On 14 December 2022, the European Union published a new regulation requiring companies to report regularly on the impact of their activities on people and the environment. We provide answers to its main key points:

What is this new regulation called?

It is Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU.

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What is its objective?

To bring sustainability reporting in line with financial reporting, in response to the exponential increase in demand for sustainability information that has occurred in recent years (especially from the investment industry), allowing access to reliable and comparable data.

What changes does it bring?

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These are the main changes it introduces:

1. It amends Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) 537/2014, as regards corporate sustainability reporting.
2. It introduces more detailed obligations on the environmental, human rights and social impacts of companies, based on common criteria in line with EU climate objectives.
3. It represents a significant step towards the establishment of global sustainability standards. In particular, the European Commission is expected to adopt delegated acts in the first half of 2023 to establish sustainability reporting standards, including the first set of sustainability standards, adopted in November 2022 by EFRAG.
4. Digital access to sustainability information is ensured.
5. To ensure that companies provide reliable information to the market and that investors have comparable data, companies will be subject to independent audits and certification processes.

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Which companies will have to comply with this legislation (scope of application)?

• All large EU companies (whether listed or not).
• Listed SMEs.
• Non-EU companies with a turnover of more than 150 million in the EU and which have a subsidiary or branch in the EU.

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How does this rule affect large companies?

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This new rule on corporate reporting on sustainability will force large companies to report regularly on the impact of their activities on the environment, human rights and the social sphere.

It aims to end the greenwashing of some companies, strengthen the social market economy in the EU and lay the groundwork for global sustainability standards.

In addition, this new legislation will eventually bring sustainability reporting in line with financial reporting, giving the public access to reliable and comparable data.

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When does it enter into force?

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The rule enters into force 20 days after its publication in the Official Journal of the European Union. This publication took place on 14 December 2022.

This standard will be mandatory for companies in the following 3 phases:

• From 1 January 2024, for large public interest companies (more than 500 employees) already subject to the non-financial reporting directive, which will be required to deliver their reports in 2025.
• From 1 January 2025, for large companies not subject to the non-financial reporting directive (more than 250 employees and/or a turnover of EUR 40 million and/or EUR 20 million in total assets), which will be required to report in 2026.
• As of 1 January 2026, for listed SMEs and other companies, which will be required to report in 2027.

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How to ensure that companies provide reliable information?

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They will be subject to independent audits and certification processes. In addition, digital access to sustainability information is guaranteed.

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How many companies are covered by these rules?

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Compared to around 11,700 companies covered by the previous rules, the new Directive will apply to almost 50,000 companies in the EU.

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Related terms

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Delegated acts: non-legislative acts adopted by the Commission to supplement or amend certain non-essential elements of a legislative act. The Commission also consults experts, including experts appointed by each Member State, before adopting delegated acts.

EFRAG: an entity that advises the European Commission on the adoption of international financial reporting standards.