It has been impossible in recent times not to hear about Climate Change, Sustainability, Taxonomy and ESG.
The buzz around ESG themes does not stem from its absolute novelty. Implementing changes with the publication of new regulations makes it evident that the evolution of ESG will significantly change how companies operate and report worldwide.
2024 is undoubtedly marked by ESG evolution and visibility. It is the first year in which the activities of companies covered by EU Directive 2022/2464 of the European Parliament and Council, also known as the Corporate Sustainability Reporting Directive (CSRD) – the Large Public Interest Entities – will be subject to the obligation to present Non-Financial Reports (NFRD).
These will be the first to transition to the CSRD requirements, meaning they will present the Non-Financial Report in 2025 regarding the fiscal year 2024.
It is also the year of the publication, on the past 5th, of the EU Directive 2024/1760 of the European Parliament and Council concerning Sustainable Corporate Governance, commonly known as the Corporate Sustainability Due Diligence Directive (CSDDD).
Both UE directives indicate that changes in the business world are about to become an undeniable reality.
Regarding the first directive, the CSRD, among other issues, stipulates that Large Public Interest Entities – already subject to the Non-Financial Reporting Directive (NFRD) – will be the first to transition to the CSRD requirements, presenting the Non-Financial Report in 2025 for the fiscal year 2024.
This reporting obligation will gradually be extended to other companies until 2029, allowing these companies adequate time to prepare for the new requirements of this non-financial report, which should be of the same quality and rigour as the financial report.
Even though many companies will not be required to present the report in 2025, it is advisable not to wait until the deadline approaches. Companies Board Directors should bear in mind that the requirements of this report involve some internal adjustments on companies, and, despite not being obligated yet, they may (i) be barred from entering the value chain of clients who already require information on implemented practices, (ii) risk not being considered attractive by investors, leading to potential loss of investment, or (iii) face obstacles in obtaining financing.
The adjustment of companies, their governance, processes, and determination of which data to include in the report to meet ESG criteria should always be conducted with specialized support. The importance of meeting ESG criteria and its impact on economies is evident in the emphasis and encouragement of its implementation in the Accelerating the Economy Program presented by the Portuguese government on July 4.
The second directive, also known by the acronym "CSDDD", imposes a greater duty on company administrations to monitor and identify the negative impacts of their activities on the environment and Human Rights throughout their value chains. The main target of this directive is large companies, including those with substantial operations in the EU.
It also increases the due diligence duty required of company administrations in analysing all data, under the risk of incurring civil liability for damages resulting from non-compliance with this duty. The civil liability provided for in the CSDDD due to the impact on the environment resulting from non-compliance with the duty of care allows those who suffer damages to seek compensation, even if these claims coincide with claims for compensation in Human Rights matters. Member States must transpose the CSDDD into their legal systems by July 2026.
Reconciling the CSRD and the CSDDD requires an integrated approach that leverages due diligence processes and data, strengthens sustainability reports, implements consistent policies, continuously monitors risks, and involves all stakeholders. These are essential steps to ensure the required compliance and transparency. The use of technology and the promotion of continuous training are fundamental measures for successful implementation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.