The CSRD will from financial year 2024 gradually expand the scope of EU law on non-financial reporting to cover four (4) times as many enterprises. The Directive does not directly oblige companies to increase their RES-E share or lower their GHG emissions. However, it introduces legally binding reporting requirements that can have a bullish impact on the GO market, if sustainability considerations are valued by the financial and consumer markets, and if market-based approaches will be acknowledged under the European Sustainability Reporting Standard (ESRS). According to the first set of draft ESRSs, undertakings shall report scope 2 GHG emissions according to both location-based and market-based methods, essentially incorporating the approach developed under the widely used GHG Protocol, which explicitly recognises GOs as market-based contractual instruments with the highest precision for scope 2 GHG accounting.

 on 21 April 2021 as part of the European Green Deal and the Sustainable Finance Agenda. The final legislation is meant to fill the gaps in the existing rules on the disclosure of non-financial rules. A problem with the NFRD had been that it did not provide clarity in terms of reporting requirements. Detailed information on reporting could be found in non-binding reporting guidelines, such as the 

Guidelines for climate-related information

, with insufficient impact on the quality of information companies have disclosed pursuant to the NFRD. The CSRD incorporates more detailed disclosure requirements into binding EU law, while at the same time as it expands to require more companies to conduct and disclose their sustainability reporting. This is expected to make businesses more publicly accountable.

The CSRD gradually expands the scope of EU law on non-financial reporting to cover nearly 50 000 companies in the Union, compared to about 11 700 companies covered by the NFRD. This will be done in four stages (see timeline).

CSRD Implementation Timeline

Renewable Energy-Related Reporting Requirements

The CSRD will require undertakings to 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. This information includes a brief description of the plans of the undertaking to ensure that its business model and strategy are compatible with, 

, the limiting of global warming to 1.5 °C in line with the Paris Agreement and the objective of achieving climate neutrality by 2050 (e.g. transition plans). The Directive also requires a description of the time-bound targets related to sustainability matters set by the undertaking, including where appropriate absolute GHG emission reduction targets at least for 2030 and 2050, and the progress the undertaking has made towards achieving those targets. The undertakings also need to specify whether the undertaking’s targets related to environmental matters are based on conclusive scientific evidence.

In order to harmonise the reporting on these and other matters, the CSRD requests the European Commission to adopt a European Sustainability Reporting Standard (ESRS). It will need to specify, according to the Directive, information that undertakings must include on scope 1, scope 2 and, where relevant, scope 3 GHG emissions.

The CSRD mandates the European Financial Reporting Advisory Group (EFRAG) to provide technical advice on the content of the ESRS, which it in practice has been doing ever since the adoption of the proposal. In fact, EFRAG delivered the 

 to the Commission on 23 November 2022. According to the 

, undertakings shall report scope 2 GHG emissions according to both location-based and market-based methods. This essentially incorporating the approach developed under the widely used GHG Protocol, which explicitly recognises GOs as market-based contractual instruments with the highest precision for scope 2 GHG accounting. Thereto, undertakings under the draft ESRS on Climate Change are suggested to disclose information on the share of energy from renewable sources of their total energy consumption.

The CSRD requires the Commission to adopt the ESRS as delegated acts by 30 June 2023, at least for such information corresponding to the needs of financial market participants subject to the disclosure obligations under the EU Taxonomy. As of 30 June 2024, the Commission is requested to adopt a delegated act on complimentary information that undertakings shall report on. These regulations will inform us of how the EFRAG’s technical advice has influenced the ESRS.

While the CSRD and the work on the ESRS indicate that GOs can have a significant role to play in non-financial reporting on energy use and GHG emissions, it is imperative to understand that the Directive does not directly oblige companies to increase their RES-E share, lower their GHG emissions or even adopt transition plans. It only requires transparent and uniform reporting so that society can hold undertakings accountable through various means, such as refraining from buying specific products or services.

The CSRD and the ESRS are also, as indicated by the Commission’s priority list on adopting delegated acts, intimately intertwined with the EU’s sustainable finance strategy. The non-financial reporting is harmonised, in line with the EU Taxonomy, so that financial market participants and advisers can fulfil their disclosure requirements under the Sustainable Finance Disclosure Regulation (SFDR). Thus, given that GOs are recognised under the ESRS for managing scope 2 GHG emissions, in line with international standards,the CSRD can have a significant impact on GOs if sustainability considerations are valued by the financial and consumer markets. It can have a bullish impact on the market.

In addition, since companies need to describe how transition plans (where adopted) are compatible with global warming and climate neutrality targets, which often require a rapid carbon-free electrification of production processes and transport, we could also see an increasing demand for GOs sooner rather than later.

Following the Council’s approval yesterday of the European Parliament's position on the CSRD, the legislation will be signed by the President of the European Parliament and the President of the Council. The Directive will be published in the Official Journal of the European Union and will enter into force 20 days afterwards. The new rules will need to be implemented by member states 18 months later, but the more pressing development for GOs is the one taking place within and between the Commission and EFRAG. We will keep our subscribers updated on this development.

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 the Corporate Sustainability Reporting Directive (CSRD) yesterday, realising the aspiration to adopt the legislation before the end of 2022. The Directive amends the current Non-Financial Reporting Directive (NFRD) with rules that significantly expand the scope of undertakings that will be required to report on their sustainability. The new legislation also incorporates reporting requirements with the potential to affect the GO market. We will explain how.

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EU Legislators Adopt Corporate Sustainability Reporting Directive

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