In early 2023, the European Union (EU) adopted the so-called directive "CSRD" (Corporate Sustainability Reporting Directive) which reinforces the sustainability reporting requirements of companies and gradually widens the scope of application (financial years 2024 to 2028).
The main objective of the CSRD is, as pointed out by the Autorité des marchés financiers (AMF), "to harmonize corporate sustainability reporting and improve the availability and quality of environmental, social and governance data (ESG) published". The former Chairman of the AMF considered, in a speech delivered in June 2022, that this directive constituted:
"The reactor core of the sustainable finance".
An ambitious directive
The objective of the directive is to provide financial players with the information necessary both to meet their own reporting obligations and also to carry out their activity.
The current limits are well known to institutional investors and fund managers who need to publish their own sustainability information: there is a lack of consensus on the definition of impact measures, on the accessibility and comparability of data.
In order to achieve its objective, the directive relies on three essential changes in the disclosure of non-financial information. First, it provides that:
“Companies will have to publish detailed information on their risks, opportunities and material impacts in relation to social, environmental and governance issues, according to a principle of "dual materiality" ".
Thus, two points of view are considered: that of the risks for the company and that of the impacts of the company. The dissemination of this information will allow financial players to draw up their reports in terms of "double materiality": financial effects on portfolios of ESG criteria and impacts of portfolios on ESG areas.
This is consistent with the obligation, provided for in the regulation of November 27, 2019 called "SFRD" (Sustainable Finance Disclosure Regulation), to take into account the main negative impacts in terms of sustainability at the level of financial products (contribution to climate change , damage to biodiversity, water pollution, gender discrimination, etc.).
Second change, the CSRD directive establishes another measure favorable to transparency with the creation of mandatory information standards relating to sustainability reporting. Previously, businesses enjoyed significant freedom as the EU only offered voluntary guidelines. From now on, the European Commission will choose the mandatory indicators on the proposal of the European Financial Reporting Advisory Group (Efrag), a non-profit association under Belgian law. This system will have to demonstrate its permeability to lobbies and avoid an administrative overload for companies.
One step ahead for France
Finally, the third major change, the CSRD directive provides that, from now on, sustainability reporting information will be audited. The regulations harden the previous law because the previous directive left it to each Member State to make such an audit compulsory. On this point, France had introduced such an audit in 2010, in the law known as Grenelle 2, with the figure of the independent third-party organization (OTI). As a result, French companies and auditors now have source experience and a comparative advantage at European Union level.
In order to give European companies time to adapt to the new legislation, the auditor will initially carry out a limited mission. Then, by 2028, the EU's goal is to move to a mission that involves more validation tests on the part of the auditor.
The absence of a mandatory audit was one of the original flaws of the 2014 directive because stakeholders could not compare audited reporting with one that was not. This deficiency could lead to a selection to the detriment of virtuous companies whose certain weaknesses were brought to light. The law of corporate social responsibility (CSR) must unmask the companies that play the comedy of appearances.
Ultimately, the work of the European legislator over the past few years has made it possible to draw a trajectory for responsible finance which aims to meet the new aspirations of society in terms of environmental, societal and governance requirements. The objectives are far from being achieved since it is necessary to facilitate the operationality of these measures for companies and investors. Furthermore, it is important to include this work in a global and global vision to prevent the European continent from ending up like a Gallic village!
Pierre Cholet, Professor Emeritus, Montpellier Management, Montpellier Research in Management (MRM), University of Montpellier; Nicolas Cuzacq, HDR Lecturer, Private Law and Criminal Sciences, University of Paris-East Créteil Val de Marne (UPEC)) et Souad Lajili Jarjir, Associate Professor of Universities in Management Sciences, University of Lorraine
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