With the NFRD, important principles for the annual sustainability reporting of large companies were laid down. The concept of "double materiality" was introduced, according to which companies not only have to disclose how sustainability aspects affect their company, but also how their company affects people and the environment. In the meantime, it has been shown that the information published by the companies is not sufficient. Reporting often lacks information that is important to investors and other stakeholders. The information between the companies is often hardly comparable, and users are often unsure whether they can rely on it. Quality problems in sustainability reporting can have repercussions. Investors are thus denied a reliable overview of the sustainability risks of companies. Investors need to know more and more about the social and environmental footprint of companies, also in order to fulfill their own obligations under the Regulation on Sustainability Disclosures in the Financial Services Sector (SFDR). In general, the green investment market can only be credible if investors are aware of the sustainability of the companies they invest in. Without this information it is not possible to channel money into environmentally friendly activities. Last but not least, reporting quality issues also result in accountability gaps. High-quality and reliable public reporting by companies will generally contribute to a stronger culture of accountability.

The NFRD introduced reporting requirements for so-called “public interest entities”, ie listed companies, banks and insurance companies. The rules apply to large companies (ie not SMEs within the meaning of the Accounting Directive) with more than 500 employees. The consultations carried out by the Commission showed that many stakeholders would like the reporting obligations to be extended to other categories of companies. Today's proposal expands the scope to include all large companies, regardless of stock exchange listing and without the previous threshold of 500 employees. This change would mean that in future all large companies would have to report to the public about their social and environmental footprint. This would also meet the demands of investors for appropriate sustainability information. In addition, the Commission proposes to extend the scope to listed SMEs and only exclude listed micro-enterprises. For reasons of investor protection, it is particularly important that investors have access to appropriate sustainability information from listed companies. In addition, if listed SMEs do not disclose sustainability data, they could risk being left out of investment portfolios. This danger is growing as sustainability information becomes more important throughout the financial system.

The proposal does not introduce any new reporting requirements for small companies, except for SMEs whose securities are listed on a regulated market. In addition, to minimize the burden on listed SMEs, the standards for their reporting are simplified compared to larger companies. In addition, the reporting requirements envisaged in this proposal would not apply to SMEs listed on SME growth markets, nor to SMEs traded on multilateral trading facilities (MTFs). Meanwhile, many SMEs are increasingly being asked for sustainability data - mostly from banks that lend them money and from the large companies that supply them. The transition to a sustainable economy is likely to mean that collecting and sharing information on sustainability will become common practice for companies of all sizes. Therefore, in parallel with the new rules for large companies proposed today, the Commission is also proposing to develop their own proportionate standards for SMEs. SMEs listed on regulated markets could fulfill their statutory disclosure requirements under these simplified standards and unlisted SMEs could apply them on a voluntary basis. These standards would be tailored to the capabilities of SMEs and would make it easier for them to share information with banks, large corporate customers and other stakeholders. They can help SMEs play their full role in the transition to a sustainable economy. In addition, since smaller companies have been particularly hard hit economically by the Covid-19 pandemic, the requirements for listed SMEs would only take effect three years later than for larger companies.

The EU standards for sustainability reporting must be in line with the objectives of the European Green Deal and with the existing EU legal framework, ie the Regulation on Sustainability Disclosures and the Taxonomy Regulation. They not only have to cover the risks for companies, but also the social and ecological footprint of the companies (concept of "double materiality"). At the same time, the EU and European companies and investors clearly have an interest in the standards being coordinated globally. The aim should be that the EU standards contain all the essential elements of the globally recognized standards that are currently being developed. They should also go beyond where necessary to achieve the EU's own goals and to ensure coherence with the EU legal framework. The Commission supports the initiatives of the G20, the G7, the Financial Stability Board (FSB) and others to develop global baseline standards for sustainability reporting, building on the work of the Task Force on Climate-related Financial Information. The proposals of the IFRS Foundation to set up a new Sustainability Standards Board are just as relevant in this context as the work to date of established initiatives such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council ( IIRC), the Climate Disclosure Standards Board (CDSB) and the CDP. The proposed EU standards for sustainability reporting would build on global standard-setting initiatives. This will require constructive two-way collaboration between EFRAG and relevant international initiatives. To lay the groundwork for such collaboration, EFRAG and the Commission have convened two meetings with the main international sustainability reporting initiatives in recent months.