New European sustainability directive will impose increase duties on directors and officers
The EU Parliament has adopted the Corporate Sustainability Reporting Directive (CSRD) to make large companies publish regular reports on the environmental, social and governance (ESG) impacts of their activities which imposes increased duties on directors and officers.
Understanding and implementing the new ESG disclosure regulations will be critical to avoid the potential threat of reputational damage if reports are challenged and a strong governance framework can ensure a company is positioned to handle increased regulation. Significantly, the EU directive defines a common reporting framework for non-financial data for the first time.
Mark Dutton, Executive Director, W Denis Group, believes the new EU directive “creates more exposure which a D&O policy can provide protection against in the event of disputes with regulators or shareholders.”
This latest move by the EU goes further than the Disclosure of Non-financial Information (NFRD) and will use independent auditing to ensure companies are complying with EU Law. The move is aimed at ensuring there are detailed reporting requirements on businesses and their impact on the environment, human rights, and social norms and establish a strategy in line with the European Green Deal.
Key points of the CSRD directive:
· It will extend a reporting requirement to all large companies, whether listed on the stock markets which means for large, listed companies that are already subject to the NFRD, the new rules will come into force from 1st January 2024 with reports due in 2025. Rules will begin on January 1st, 2025, with reports due in 2026 for businesses that are not currently subject to the NFRD but have more than 250 employees, €40 million in annual revenue, or €20 million in total assets.
· Listed SMEs will now be covered by the legislation which means they will have to start complying with the rules from 1st January 2026 with reports due in 2027. SMEs do have the ability to opt-out until 2028.
· Non-EU companies with a turnover of €150 million or more will also have to comply which furthers ESG requirements for companies that may have no legal ESG requirements in their jurisdiction. Reporting obligations for non-EU companies will start from 1st January 2028.
The EU has taken into consideration the time needed for companies to react to the CSRD directive to allow companies not previously subject to the NFRD sufficient time to implement new ESG requirements. It is important that large companies start preparing to ascertain if they are subject to the new requirements of the CSRD.
W Denis Europe offer Directors and Officers Liability Insurance to companies across the EU, from small start ups, to major public listed entities with global exposures. For any enquiries, please contact Vida Jarasiunaite Vida.firstname.lastname@example.org or Mark Dutton email@example.com