Corporate Sustainability Reporting Obligations in the EU and UK

December 2023

EU corporations and non-EU corporations should prepare for new sustainability reporting obligations under the European Corporate Sustainability Reporting Directive (CSRD). The United Kingdom continues to develop its own revised and updated corporate sustainability reporting regime that will apply to UK companies.

Sustainability has been at the forefront of the European Union’s legislative activities for the last few years. The United Kingdom has begun passing its own economy-wide sustainability regulations that are distinct from EU laws. With respect to corporates, the EU and UK have opted for extensive reporting obligations to meet stakeholder demands for more sustainability transparency and accountability. The EU and UK laws both no longer focus only on listed companies or public-interest companies (such as banks and insurers); instead, the new laws will be triggered if certain size thresholds (e.g., revenue or employee thresholds) are met on an individual or consolidated basis. Notably, from 2025, large private EU companies will be in scope of the CSRD. The EU laws are phased in over time, with the largest companies becoming subject to the new rules the earliest.

In addition, the CSRD incorporates an extraterritorial element by (additionally) making non-EU corporations subject to the new sustainability reporting obligations—if certain revenue thresholds are met in the EU. Therefore, multinational corporations headquartered outside the EU with subsidiaries in an EU country need to assess whether their respective subsidiaries will become subject to the new reporting obligations. Also, the added attention of legislators, law enforcement authorities, and public interest groups in environmental, social, and governance (ESG) in general and CSRD in particular increases the pressure on multinational corporations to pay closer attention to these topics, even if they may seem (geographically) far away.

The extensive sustainability disclosures that multinational corporations will have to make if they are in-scope of CSRD (or other such regimes) also bear a considerable risk of nurturing climate activism and action, since one of the policy drivers of transparency obligations is to equip stakeholders such as shareholders, investors, employees, activists, and public interest groups with sustainability information about a certain corporation so it may potentially be challenged.

The UK has started to enact its own corporate sustainability reporting regime. In common with the EU approach, whether companies are in scope of those laws generally depends on whether they meet certain size thresholds on an individual or consolidated basis. In particular, certain UK companies with a high energy consumption are already required to report their energy and greenhouse gas (GHG) emissions under the UK Streamlined Energy and Carbon Reporting Regulation (SECR) and provide a statement on how managers have had regard to certain sustainability matters as part of their management duties.

In addition, high-turnover UK companies are already required to report in line with the Task Force on Climate-Related Financial Disclosures (TCFD) framework. Furthermore, the UK has signaled that it will likely adopt the sustainability disclosure standards developed by the International Sustainability Standards Board (ISSB) and make it mandatory for certain UK companies to report in line with the ISSB standards.

It is important to acknowledge that many companies currently report sustainability information voluntarily, typically aligning with a particular reporting standard.