European Commission Sets the Agenda: ESG Reporting Requirements in the EU and the U.S.

As part of a general policy of improving transparency on environmental, social and corporate governance (“ESG”) matters, the EU has adopted a new law known as the Corporate Sustainability Reporting Directive (“CSRD”). The CSRD will require thousands of companies, both inside and outside the EU, to report on their sustainability credentials. During the process of its adoption, the CSRD attracted far less controversy than its U.S. counterpart, the proposed SEC climate rules. This is surprising given that the CSRD is far more expansive both in terms of the companies it applies to, as well as what they will be required to report on. In this article we explain who will need to comply with the CSRD and what it requires, and we explore the upcoming US climate reporting initiatives. We conclude that the EU rules are largely defining global ESG regulation due to their value chain requirements and application to non-EU companies. In our view, these are likely to have a significantly greater impact on market practice than the much-anticipated SEC climate rules.

By Michael Mencher & Emma Bichet^[1]

I. INTRODUCTION

Reporting on ESG matters used to be reserved to companies hoping to attract investment based on their ESG credentials, and a few large European Union (“EU”) listed entities, who had to prepare high-level non-financial disclosures. This is all changing. On January 5, 2023, the EU’s Corporate Sustainability Reporting Directive (“CSRD”)^[2] enter