Sustainability reporting has been growing in importance over the last decade but the lack of alignment with measuring tools, frameworks and protocols has created a great deal of complexity. As more coherent regulation is introduced, and as the penalties for lack of adherence increase, effective reporting across most types and sizes of organisation will become mandatory.
Europe is leading the way in terms of confirmed legislation for reporting purposes, while the UK is busy implementing its Sustainability Disclosure Requirements (SDR) framework. In the US there is no federal mandate for ESG reporting but the SEC recently voted in favour of the Climate Related Disclosure Standards (CRDS) that will require certain companies to disclose risks related to climate change, with the notable absence of Scope 3 emissions.
Current European legislation:
Corporate Sustainability Reporting Directive (CSRD, agreed in November 2022, formal adoption scheduled for June 2026).
• The rules will affect all large companies and all listed companies (except listed micro-enterprises) in Europe as well third country companies with a €150 million turnover in the EU and which have at least one subsidiary or branch in the EU. The date of application for third country companies will be the financial year 2028.
Corporate Sustainability Due Diligence Directive (CSDDD, approved in April 2024, due to be implemented from 2027 to 2029).
• The new rules (except for the communication obligations) will apply gradually to EU companies (and non-EU companies reaching the same turnover thresholds in the EU):
From 2027 to companies with over 5000 employees and worldwide turnover higher than 1500 million euro;
From 2028 to firms with over 3000 employees and a 900 million euro worldwide turnover;
From 2029 to all the remaining companies within the scope of the directive (including those over 1000 employees and worldwide turnover higher than 450 million euro).
Current UK legislation:
The landscape is taking shape, and the government has communicated its intention to create UK Sustainability Reporting Standards (UK SRS) by assessing and endorsing the global corporate reporting baseline of IFRS Sustainability Disclosure Standards.
The International Sustainability Standards Board (ISSB) published two standards in June 2023, IFRS S1(General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures). The Government intends to make the UK-endorsed ISSB standards available in Q1 2025. According to an implementation update published last week (16th May 2024), and following both a positive endorsement decision and subsequent consultation process, the FCA will be able to use the UK SRS to introduce reporting requirements for UK-listed companies along with a decision on companies that do not fall within the FCA’s regulatory perimeter.
What does this mean in practice? Staying ahead of these developments and ensuring you have a sustainability strategy and plan for any reporting requirements will be important. At Tenon, we can help in a number of ways, whether it’s through the selection and appointment of a Head of Sustainability, on a permanent, interim or fractional basis, or through consulting and advisory work.
Please get in touch to find out more.
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