Environmental impact
The European Corporate Sustainability Reporting Directive (‘CSRD’) will require over 9,000 European companies with more than 500 employees and a worldwide net turnover in excess of EUR 150 million to report on sustainability risks for the company and on the company’s impact on the environment. The sustainability information must be included the management report. The CSRD requires companies to have the reported sustainability information externally audited. In addition, companies are to report what they do to reduce their negative impact on the environment. Failure to comply with these reporting obligations can lead to director’s liability. European companies that meet at least two of the following three criteria: more than 250 employees, more than EUR 40 million turnover and more than EUR 20 million balance sheet value must report on sustainability. In practice, this means about 3,000 Dutch and about 50,000 European companies. This is a considerably larger number than the 100 companies that currently have to report on their policies on the environment and the climate under the Decree on the Disclosure of Non-Financial Information (in Dutch: Besluit bekendmaking niet-financiele informatie). Companies in so-called high-impact industries, like textile, agriculture and mining of minerals, are expected to be granted a two-year extension period to prepare for reporting. More than 2,600 non-European companies fall into any of these two groups.
The CSRD will likely have a consequential effect. CSRD-compliant companies will hold up their relationships with other companies against the same high CSRD bar. Also, conformity with the CSRD increases a company’s own degree of sustainability. As awareness of the need to combat climate change continues to grow, customers will increasingly choose companies that operate more sustainably. Inconsequence, more sustainable companies will become more valuable to their stakeholders. M&A transactions will increasingly assess and consider (in financial terms) CSRD compliance.
