Below is a round-up of selected updates on developments in Europe of ESG regulations and policies. Please note that this list is not comprehensive and may not include all such developments that may be relevant to your business. 

In this edition we have concentrated on developments that impact corporate sustainability reporting and disclosure obligations. Contact us for specific legal advice and assistance.

Corporate sustainability reporting and disclosure

• The Corporate Sustainability Reporting Directive (CSRD) entered into force on 5 January 2023 (link to Official Journal publication). Member states are to implement the CSRD into national legislation within 18 months – you can track the implementation timetable through this link. In 2025, the largest companies (already reporting under the Non-Financial Reporting Directive) will need to publish their ESG data (covering 2024) against the first set of “sector-agnostic” (i.e. applicable regardless of the sector) European Sustainability Reporting Standards (ESRS) which should be adopted by the Commission later this year. Large undertakings (exceeding two of the three thresholds, i.e., €20 million balance sheet total, €40 million net turnover and 250 employees) are to follow in 2026 (covering 2025 data) and listed SMEs in 2027 (covering 2026 data). In addition, parent undertakings based outside the EU will be required to report sustainability data from 2029 (covering 2028 data) through certain EU subsidiaries and/or branches.
  
  More guidance on “sector agnostic” ESRS requested: During the EFRAG Sustainability Board meeting on 24 February 2023, the Commission requested that EFRAG focus on providing additional guidance for companies on the implementation of ESRS that are not specific to any sector instead of developing sector-specific ESRS.
  
  Next steps for ESRS set 1: 
• The European Commission published the final draft Delegated Acts (ESRS set 1) for public consultation on 9 June 2023 (link) which is now subject to public consultation until 7 July 2023.
• The Commission is to adopt the final ESRS Delegated Acts by the end of July 2023.
• The European Parliament and the Council will then have two months (extendable by another two months) to examine the standards starting not sooner than 20 August 2023.
• Provided no objections are raised, the SRES set 1 will be legally adopted.

The first companies will have to apply the new rules for the first time in the 2024 financial year, for reports published in 2025. In the meantime, finalization of sector-specific standards along with public consultation has been delayed by at least one year, and EFRAG will continue its work on developing SME standards (but public consultation has been delayed).



• Related disclosure obligations under the EU Taxonomy regime: Companies subject to CSRD reporting must also make disclosures under Article 8 of the Taxonomy Regulation (link). On 19 December 2022, the European Commission published a draft Commission Notice with FAQs (link) focusing on the Disclosures Delegated Regulation (link) adopted in July 2021 which specifies the content and presentation of information that undertakings subject to CSRD must disclose (under Article 8 of the Taxonomy Regulation) concerning environmentally sustainable economic activities. It also specifies the methodology to comply with that disclosure obligation.

Gender equality

• EU Gender Equality Strategy 2020-2025 (link) presents policy objectives and actions to make significant progress by 2025 towards a gender-equal Europe. The two recently published directives below are indicative of the strategy’s multi-pronged approach.
  
  
• Gender Balance Directive (link) was published in the Official Journal on 7 December 2022 and came into force on 27 December 2022. The Directive applies to listed companies (having a registered office in a member state and shares admitted to trading on a regulated market in one or more member states) and sets targets to be reached by 30 June 2026 achieving (for the underrepresented gender) a 40 percent share among non-executive directors and 33 percent among all director positions (executive and non-executive). In-scope listed companies must provide relevant information about the gender representation of their boards to the competent member state authorities, once a year. Member states will also require listed companies to publish that information in an appropriate and easily accessible manner on their websites and as relevant, pursuant to CSRD.
  
  
• Equal Pay Directive (link) was published in the Official Journal on 17 May 2023 and became effective on 6 June 2023. Member states have three years to implement the Directive into national legislation. The Directive sets out the minimum required standards leaving individual member states the possibility to introduce or maintain laws more favorable to workers. The Directive includes requirements, such as gender pay gap reporting, a ban on pay secrecy agreements, information rights for job candidates, employees and more. Employers that are subject to the requirements of the CSRD may choose to report on pay alongside other worker-related matters in their management report.

For comments, questions and follow up reach out to: Europe - ESG Regulatory Update.