Applicable to all asset and fund managers.

The SFDR introduces reporting rules to make the sustainability profile of funds more comparable to investors. Eligible companies must disclose pre-defined metrics that assess environmental, social and governance outcomes. The regulation requires asset managers to provide standardized reporting on how ESG factors integrate at both company and product levels.

The green taxonomy is primarily a classification system to clarify which economic activities can be considered environmentally sustainable. The EU Taxonomy provides a framework to define when a company operates in ways benefiting society and the environment, thus limiting greenwashing and creating a level playing field for sustainable investing.

The EU Taxonomy Regulation applies to the following three groups:

1. Companies with more then 500 employees that fall under the Non-Financial Reporting Directive (NFRD)
2. Players in the financial sector including occupational pension providers that offer offer and distribute financial products in teh EU, even if they are based outside the EU
3. EU and member states institution when setting public measures, standards or labels for green financial products and corporate bonds

Requirements for companies from outside and within the financial sector differ, though some companies may fall into both categories.

The Corporate Sustainability Reporting Directive (CSRD) is a pivotal regulatory reform initiated by the European Commission aimed at improving the landscape of non-financial reporting. It significantly extends the existing Non-Financial Reporting Directive (NFRD) by expanding its scope, tightening reporting requirements, and integrating sustainability into corporate governance.

What companies are affected?

The breadth of companies affected by the CSRD is vast, encompassing nearly ten times the number of businesses covered by NFRD. It includes approximately 50,000 companies within the EU and an additional 10,000 companies headquartered outside the EU. Moreover, the scope is not confined to publicly listed companies. Entities, whether operating individually or as part of a consolidated group, across various categories may be subject to these reporting requirements.

When will reporting be required?

The reporting timeline differs based on the entity type. Entities classified as “large undertakings” with securities listed on an EU-regulated market and with over 500 employees, as well as those that are subject to NFRD will need report in 2024 with reports to be published by 2025. All other large companies will have their reporting deadline in 2025 with reports to be published in 2026. Reporting requirements for smaller entities will kick in a year later, companies headquartered outside the EU will need to report throught their EU subsidiaries in 2028, with the publication deadline in 2029.

What are the key reporting requirements?

CSRD breaks new ground for reporting requirements compared to NFRD that it replaces and many other national standards to date. Central to these requirements is the ‘double-materiality’ principle. It mandates companies to recognize not just the sustainability challenges posing risks to their operations, but also the global ecological and societal impacts generated by their business. The topics covered include climate change as well as additional environmental topics such as pollution and biodiversity, social topics such as own workforce and workers in the value chain, and governance topics such as business ethics and supplier payment
practices.

Companies will need to report in accordance with required standards depending on company location, size and sector. Some of these standards, such as European Sustainability Reporting Standards (ESRS,) have already been finalized, others are still in development.

Applicable to companies established in France, employing more than 5,000 people in France or 10,000 persons worldwide.

Under France’s devoir de vigilance, certain large companies must follow the UN Guiding Principles on Business and Human Rights in the execution of their business. It requires companies to establish due diligence processes throughout the supply chains to prevent human rights and environmental violations. Companies in the scope of the legislation need to do risk mapping to identify supplier risk levels by region or category, conduct due diligence assessments and mitigation, and develop annual plans (“plan de vigilance”), describing the related risks and measures taken to address them. Following a formal complaint, a failure to act with adequate diligence or adhere to standards of reasonable care may lead to civil liability of defaulting company.

To learn more about how the Duty of Care Law (Devoir de Vigilance) affects your business read our whitepaper (in French).

Applicable to companies selling goods and services to Dutch end-users, including companies registered outside the Netherlands.

The Child Labor Due Diligence Law requires companies to investigate whether child labor contributed to any goods or services they are selling or supplying. Companies must issue a due diligence statement, and if they identify any issues, set out a plan of action.

Companies that fail to comply with the requirements face steep fines, while continued non-compliance can result in criminal sanctions. It’s one of the first criminal enforcement tools for a failure to exercise human rights due diligence.

In short, below are the key requirements of the law:

1. Companies are expected to investigate and determine whether there is reasonable suspicion that child labor contributed to the goods or services they are selling or supplying.
2. If such a reasonable suspicion exists companies are required to create and engage in a “plan of action” to address their finding.