Companies with robust CSRD-aligned data practices are poised to gain value and differentiation, writes David Maguire
The European Commission’s recent proposal to amend various corporate transparency and accountability directives with the sustainability Omnibus aims to reduce the administrative burden for corporates.
The Commission sought to balance improving competitiveness with maintaining enough disclosure requirements to support risk management – including for commercial real estate investors and occupiers.
Over the last few years, the EU has introduced several new legislative instruments focusing on improving the quality and coverage of corporate sustainability disclosures, and increasing the pace of action towards sustainability targets for organisations conducting business in the EU. However, the recent Draghi report on EU competitiveness highlighted several issues with the rules, including the disproportionate burden they are likely to create for small and mid-cap companies.
In a bid to address these issues and improve the EU’s ability to compete on the global economic stage, the omnibus proposal was released on 26 February. The Commission estimates that this omnibus will save companies around €6.3bn per year in annual administrative costs, in addition to significant one-off savings relating to the set-up of reporting processes.
What changes have been proposed?
Among many other amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive, EU Taxonomy (EUT) and the Carbon Border Adjustment Mechanism, the proposal significantly reduces the scope of companies required to report under the CSRD to those with more than 1,000 employees and either a turnover of over €50m or a balance sheet above €25m. This means that only 20% of the companies covered under the previous version will be in scope.
The proposed changes will also postpone reporting requirements for many companies by two years, greatly reduce the number of data points required to be disclosed, and remove the requirement for companies to conduct due diligence on their full value chain. Instead, these changes will be restricted to direct suppliers only.
What is the impact on commercial real estate?
Many small and mid-cap property investors will breathe a sigh of relief as, due to the new thresholds on employee numbers, they will fall out of the newly proposed scope of the CSRD. For large occupiers currently within scope to report under the CSRD, there may now be some extra time to prepare for compliance.
Even with the reduced thresholds for, and delay in, reporting, we strongly believe that a double-materiality assessment is a valuable tool for all commercial real estate investors and occupiers. The first companies to undertake these assessments now possess valuable insights into the financial risks and opportunities that sustainability issues present for their business and stakeholders.
In addition, taking stock of your company’s sustainability data, targets, and transition plans well in advance of future reporting deadlines will strengthen investor and stakeholder relations and support business resilience.
The data underlying the European Sustainability Reporting Standards remain key to understanding risk exposure and informing value creation opportunities, and many of these data points should also be gathered as a matter of good practice – to control costs, optimise operations, and communicate performance.
Companies that have invested considerable time and resources in improving their data collection, management, and reporting practices in line with the current CSRD should be positioned to leverage these efforts to create value and differentiation.
Many financial institutions and several national banks now use the EUT as the benchmark for green loans and investments. Assessment of full and partial alignment with the current and, when applicable, revised taxonomy, is still recommended for real estate assets and funds.
High-quality sustainability disclosure is key to managing risk for both investors and occupiers of real estate. While requirements may change for many companies, the fundamental business case for reporting environmental performance, social responsibility, and transparent governance is still as relevant as ever.
What happens next?
The European Commission proposal is the first step in a potentially drawn-out process requiring the European Parliament and European Council to adopt their own positions on the legislation before negotiating the law in trilogue discussions and carrying out a final vote.
This process can take months, or even years, and during this time further changes to the legislation are common. Countries will then have one year to transpose the directives into their own legislation.
The industry should stay aware of further updates over the coming months to ensure appropriate preparation for compliance.
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