CSRD - working against greenwashing
In the future, Europe's large enterprises as well as small and medium-sized capital market-oriented enterprises will have to publish a standardised sustainability report. The revised CSR Directive thus paves the way for sustainable finance without greenwashing.
CSRD: Big title, important decision for sustainable finance
The EU Parliament, Council and Commission have agreed on the final text of the directive on sustainability reporting - the Corporate Sustainability Reporting Directive, or CSRD for short. The Directive is a key building block for sustainable finance. Together with other sets of rules, it creates the framework for transparent, comparable and meaningful sustainability information. CSRD is thus fundamental to counter greenwashing.
But one thing at a time: The CSRD requires undertakings in all sectors of the economy to publish sustainability reports. Undertakings defined as large by the EU Accounting Directive and already covered by the currently applicable CSR Directive must prepare the reports for the first time for financial year 2024 and publish them in 2025. All other large undertakings - and thus almost all German insurers - will have to report one year later. Capital market-oriented smaller and medium-sized undertakings will be included from financial year 2026.
Publication requirements apply to 50,000 undertakings across Europe
In Germany, under the previous CSR Directive, all large public interest entities - including insurers - with more than 500 employees have already been required to publish a sustainability report since financial year 2017. The new CSRD will apply to around 15,000 undertakings across Germany and around 50,000 enterprises across Europe.
To ensure that corporate sustainability data can be used by investors as easily as possible, the CSRD aims to ensure that the data are standardised and thus comparable. Most importantly, the CSRD is a prerequisite for providing insurers and other financial services providers with meaningful data to make better investment decisions and design sustainable products.
In addition, insurers themselves must provide information on how their investments affect the environment and society. The EU Sustainable Finance Disclosure Regulation (SFDR) specifies a variety of environmental, social, and governance factors (Principal Adverse Impact, or PAI) that insurers must report on. For example, if an insurer invests in a company that emits CO2, the insurer must record this accurately and show it as a negative factor. The CSRD, in turn, is the legal basis for underdakings to publish the necessary PAI in their sustainability report.
CSRD requirements must be aligned with global reporting standards
Of course, insurers must also comply with the CSRD, because insurers are also investment targets. However, I would have liked to see some of the CSRD requirements better adapted to the specifics of the insurance business. For example: Unfortunately, the same size criteria apply to insurers as to undertakings in the real economy. In concrete terms, this means that an insurer with seven employees must fulfill the same reporting obligations as a DAX-listed group. This does not make sense.
It is also important to closely align the reporting standards under the CSRD with the global sustainability standards currently being developed by the International Sustainability Standards Board (ISSB). Under no circumstances should it happen that European undertakings have to develop two reporting systems - one according to CSRD standards and another according to ISSB standards.
Many questions about data access still open
Moreover, the flow of data between investors and the undertakings in which they invest is not yet optimal. Undertakings will publish their PAI in the future, but there is no central database accessible free of charge throughout Europe. This database is to be created with the 'European Single Access Point' (ESAP). However, many questions regarding data access and concrete implementation are still open and must be clarified quickly so that investors can easily access sustainability data, among other things, at any time.
Nevertheless: The CSRD is undoubtedly an important step forward - also because the published data are independently audited externally. Together with the clear sustainability criteria of the EU Taxonomy Regulation and the requirements of the SFDR, the CSRD is an essential element of the anti-greenwashing formula.