In recent years, the pressure towards sustainability from external stakeholders has been placed on the shoulders of the companies. It has increased exponentially due to the worsening of the social and environmental situation. With tougher competition, it is fundamental for companies to carry out new sustainability strategies that combine value creation, to become competitive in a more sustainable way. There are several ways in which the stakeholders demand specific information about the sustainability trend of the companies. According to Larry Fink (2018), the managing director of the multinational American fund manager Blackrock, businesses have to show their positive contribution to the development of society. In other words, they have to satisfy all the stakeholders, including owners, employees, customers, and in particular the environment in which they operate. This growing need for social acceptance by the companies was introduced as the Legitimacy theory, founded by Dowling and Pfeffer in 1975. This theory implies a settlement between businesses and society where businesses try to keep socially acceptable behaviour with the final objective of obtaining social acceptance, relevance and legitimacy. In other words, according to this theory, a business cannot survive and gain support if it cannot be perceived as successful and sustainable by stakeholders or society. By issuing a sustainability report, the company experiences benefits like enhanced brand value, reputation and improved transparency. All these help the companies achieve a competitive advantage.
          However, sustainability reporting is no longer just a moral obligation, but a legal imperative, required by EU legislation (European Commission, 2022a). 
In fact, in 2019, the European Court of Auditors conducted a review of the status of sustainability reporting at the EU level and by individual EU institutions and agencies. Period in which there was no specific legal obligation for the Commission or other EU institutions to produce sustainability reports. 
This investigation was based on survey analyses of 12 EU institutions, 41 EU agencies and 53 annual reports of the survey respondents. The study shows how only 2 out of the 53 respondents disclosed sustainability information. As we can see in Figure 1, the main reasons for not publishing a sustainability report were the lack of know-how for the preparation and the absence of consideration.

 
Figure 1

As shown in Figure 2, respondents were aware of the potential benefits of sustainability reporting, like increased transparency and credibility. However, they also considered that it would enhance their workload.
 
Figure 2

Essentially, the above survey brought the European Court of Auditors to conclude that necessary prerequisites for sustainability reporting were yet to be implemented.

In September 2023, PricewaterhouseCoopers (PwC) surveyed 345 investors across 30 countries. All respondents were mainly institutional investors with 48% having more than ten years of experience in the related industry. In this survey, most of the investors agree that ESG (Environmental, Social, Governance) factors should be implemented in the business strategy and they should spend more to address ESG issues that are relevant to their company (even if it could reduce their short-term profitability). So, all the sustainability-related risks and opportunities are essential for the decision-making of investors. 
In Figure 3, we can acknowledge how the integration of ESG has slightly diminished since the survey in 2021. Yet, the number of investors who strongly disagree about ESG’s relevance has declined as well. Here is a detailed view of how much they agree or disagree with the following statements about the companies in which they invest:


 
Figure 3



Later in this thesis, we are going to discuss how the EU managed to develop and implement new detailed reporting requirements.

1.1	ESG reporting frameworks

1.1.1	Sustainability Accounting Standards Board (SASB)

The Sustainability Accounting Standards Board (SASB) was founded as a non-profit organization in 2011 to support companies and investors in developing their businesses by determining the financial impacts of sustainability. Later on, the complexity of the sustainability disclosure landscape has increased. Global businesses started to call for simplification and clarity. Therefore, in November 2020 the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) responded by announcing a new merger into the Value Reporting Foundation (originally formed in June 2021). This merger indicated a movement towards simplification. 
The Value Reporting Foundation helped businesses and investors, to develop a common language of the understanding of enterprise value, by providing a comprehensive list of resources including the SASB Standards, Integrated Reporting Framework and Integrated Thinking Principles. Then, the Value Reporting Foundation Board of Directors appointed the SASB Standards Board, which was an independent organization accountable for the process, outcomes and ratification of its standards. The 77 industry-based standards provided important information to investors and they are efficient in terms of costs for companies. A fact evidenced by their use in over 3 thousand businesses in more than 80 jurisdictions around the world. On August 1, the Value Reporting Foundation announced its consolidation into the International Financial Reporting Standards (IFRS) Foundation to set up the global baseline of high-quality sustainability standards called the International Sustainability Standards Board (ISSB).


1.1.2	Global Reporting Initiative (GRI) 

The GRI (Global Reporting Initiative) is an independent and international organization originally founded in 1997 in Boston (USA) due to environmental damage caused by the Exxon Valdez oil spill. In the beginning, GRI created a mechanism to make sure companies comply with responsible environmental behaviour, which later also broadened to governance, social and financial issues.
In 2016, the transition from providing guidelines to putting in place the first-ever global standards for sustainability reporting (GRI Standards) occurred. 
          Recent research on ESG reporting (published on the 26th October 2022 by KPMG) in which the world’s biggest 250 businesses by revenue (G250), as well as more than 100 top companies in each of 58 countries (N100) were surveyed on the disclosure practices. Findings show how GRI offers the main reporting standards used by 75% in the Americas, 68% in Asia-Pacific and Europe, and 62% in ME & Africa. Undeniable widespread across countries that underlines the growing relevance of the GRI standards.


1.1.3	International Sustainability Standards Board (ISSB)

The ISSB was originally established on 3 November 2021 at COP26 in Glasgow. The formation was announced by the Trustees of the IFRS Foundation because of the rising demand for decision-useful information and an efficient reporting landscape. The ISSB has a rigorous process to develop high-quality standards that respond to the needs of investors and the financial markets. It works closely with the Global Reporting Initiative (GRI), which is the leading provider of sustainability standards. This collaboration helps reduce the reporting load for businesses and harmonise the landscape at an international level. 

          After considering the Exposure Draft published in March 2022, the ISSB issued its first two Standards in June 2023:
-	IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (beginning from 1 January 2024) provides a set of sustainable-disclosure requirements created to ensure better communication between companies and investors, allowing them to face the short, medium and long-term of sustainability-related risks and opportunities.
-	IFRS S2 Climate-related Disclosures (beginning from 1 January 2024) lays out new requirements for a business to disclose details about its climate-related risks and opportunities. 
These standards fully incorporate the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures), that has been disbanded on October 12, 2023, due to its fulfilment of remit. Therefore, the Financial Stability Board has asked the IFRS Foundation to take control of the monitoring process regarding the progress of companies’ climate-related disclosures.


1.1.4	Carbon Disclosure Project (CDP)

The CDP was established as a not-for-profit organization in 2000 with the ambition to create a global economic system able to prevent dangerous climate change. 
CDP has flourished, ever since, by providing a framework for the world. It puts accountability for performance on climate, water and drivers of deforestation at the core of decision-making by corporations, investors, cities, states and regions. 
Essentially, capital markets and purchasers request environmental data from the companies through CDP. So, companies measure and disclose their impacts, risks and opportunities. Then, they take action to tackle climate change, prevent deforestation and safeguard water.
          As a survey-based disclosure framework, it issues, on an annual basis, a questionnaire based on the business’s responses, providing in this way a benchmark score.
As of 2022, more than 18,700 companies representing half of global market capitalization are disclosed through CDP. The continuing benefit of disclosing through CDP has been confirmed by a 2021 post-disclosure survey in which 86% of the companies agreed that “reporting through CDP protects and improves the reputation of my organization”.
It perfectly aligns with the Task Force on Climate-related Financial Disclosures (TCFD) process, by implementing it in the system. 


1.1.5	Science-based Targets Initiative (SBTi)

The Science Based Targets initiative (SBTi) is an organization formed as a collaboration between the World Resources Institute, CDP, the United Nations Global Compact, the We Mean Business Coalition, and the World Wide Fund for Nature (WWF). Essentially, it enables businesses and financial institutions around the world to engage in combating the climate crises. The SBTi’s goal is to develop standards, tools and guidance that allow companies to support the global economy to reduce the catastrophic levels of world heating and reach net-zero by 2050 at latest. The concept of net-zero has covered just 16% of the global economy as of 2019, but it raised to 70% by 2021. 
So, the Science Based Targets initiative (SBTi) offers the only global framework that by the end of 2023 helped over 4,000 companies and financial institutions to transition to a net-zero economy by putting in place targets aimed at reducing emissions.


1.2	Greenwashing and its main drivers

Sustainability and green-thinking are becoming more and more popular among the companies, as they try to build an environmental-friendly image that appeals costumers, employees and investors. However, not all companies have the capabilities to tackle climate change, so they fall into greenwashing.
Therefore, the objectives of greenwashing are geared towards a change in the company's reputation without having a real impact on the environmental sustainability of the production of the products manufactured and the products themselves.
In fact, greenwashing is interpreted as behaviour resulting from the intersection of poor environmental performance and positive communication about that performance (Delmas and Burbano, 2011). In a broader sense, greenwashing refers to the set of practices of ‘cosmetising’ corporate identity (identity-washing), which tend to ‘make-up’ or hide the most controversial aspects from a sustainability perspective.
          The risk of greenwashing is therefore inextricably linked to the communication dimension and can generate negative effects even for the reputation of companies that are genuinely committed to the principles of sustainability. Greenwashing tends, therefore, to create a dangerous ‘paradox’, in which the benefits of sustainability communication can be significantly reduced not only for organisations that consciously and deliberately resort to it, but also for those that behave in a ‘genuinely’ responsible manner.
          The concept of greenwashing has been defined in different ways by various sources.
The term was coined, however, in 1983 by US environmentalist Jay Westerveld when he identified a common practice at hotel chains: inviting their guests to reuse towels. Westerveld noted that the emphasis on the environmental effect of frequent laundry hid, in 


reality, mainly economic reasons, as there was a complete lack of other sustainable policies, initiatives and actions within hotel facilities (Tosco, 2023).
The term derives from the union of two English words: ‘green’ - a symbolic colour representing sustainability and environmentalism - and ‘white-washing’. Literally, greenwashing represents the attitude of concealing real conduct by greening one's actions. These tactics were also used in the years before 1986 due to the fact that consumers had to trust only the information given by the companies through television, radio or newspapers, without having any possibility of having real feedback on their veracity through more in-depth online research.
The Oxford English Dictionary provides a definition of the term ‘greenwashing’:

To mislead (the public) or counter (public or media concerns) by falsely representing a person, company, product, etc., as being environmentally responsible.

          It is from the 1990s onwards that there is a significant increase in the phenomenon of greenwashing at the same time as the first regulations on the subject are approved. In 1992, the US Environmental Protection Agency (EPA) approved the first provision on the subject, followed by the Green Claim Code issued by the British government.
In 1991, a study published in the Journal of Public Policy and Marketing by the America Marketing Association found that 58% of environmental advertisements contained at least one misleading claim. Despite the fact that this phenomenon is not very old - it has existed since the 1990s and spread throughout the first decade of the 21st century - the number of companies resorting to greenwashing and in general its prevalence has largely increased

In a study conducted by authors Delmas and Burbano in 2011 in University California of Press, the main drivers of greenwashing are examined, identifying them in three distinct levels: external level, organisational level and individual level. 

 
Figure 4

Source: https://www.researchgate.net/figure/The-Drivers-of-greenwashing-source-Delmas-and-Burbano2011_fig1_277360355

The authors also distinguish external drivers between those pressures that depend on both non-market actors (regulators and NGOs) and market actors (consumers, investors and competitors).
          In conclusion, we can state that often and frequently, companies adopt greenwashing practices, taking shortcuts, without having sustainability as an integral part of their business principles and values.


1.2.1	Volkswagen emissions scandal

          Volkswagen Aktiengesellschaft (AG) is the parent company of the Volkswagen Group and is headquartered in Wolfsburg in Lower Saxony, known worldwide as the base of the German automotive industry. Volkswagen AG controls 12 brands in seven European countries: Volkswagen Auto, which is the group's main brand, Audi, Lamborghini, Ducati, Bugatti, Skoda Auto, Porsche, SEAT, Man SE, Scania AB, Bentley and Volkswagen Commercial Vehicles.
          The German car manufacturer has been accused of irregularities in the management of anti-pollution systems. German technicians have developed a control unit, called a defeat device installed in many of the group's models, which is able to detect when the car is being tested in the laboratory and when it is driving normally on the road. When the software detects that the car is being used in the laboratory, it modifies the operation of a filter that limits pollutant emissions, while under normal conditions of use this filter works in a completely different and incorrect way. The use of the handling system (as we can see in Figure 5) on cars during normal on-road driving conditions emits harmful NOx at levels up to 40 times higher than those required in the type approval for the 2.0 TDI engine and 9 times for the 3.0 TDI engine of the Volkswagen Group of cars produced from 2009 to 2015.
          Originally, the scandal erupted in September 2015 when the United States Environmental Protection Agency (EPA) served a notice of violation of the Clean Air Act (CAA) on Volkswagen (VW). However, the origins of the story have roots much further back than 18 September 2015, the day of the formal announcement of the opening of the investigation against the group. It all originated at the beginning of 2014, when the Centre for Alternative Fuels at West Virginia University in the United States started to carry out emission tests on a number of diesel cars for the European headquarters of ICCT .
Of all the data available to the American University, only two were of particular importance: the fuel consumption and emissions recorded on the road by the two Volkswagen Group models were completely out of line with the laboratory data and those declared by the manufacturer.
          The Dieselgate case demonstrates how a lack of two-way communication with employees played a role in creating one of the most egregious scandals of the last decade. The so-called Dieselgate or emissions scandal concerned the discovery of falsified emissions from Volkswagen Group diesel-powered cars sold in the United States of America and in the vehicles involved on the test bench had emissions in line with US legal requirements thanks to ECU software specially modified to be able to reduce emissions at the expense of other performance during homologation tests, improving performance at the expense of environmental constraints during normal operation. 
          The aftermath of the 2015 scandal has deeply shaken Volkswagen as well as the entire automotive industry, bringing to light again problems such as the ambiguity with which homologation tests are conducted. The Wolfsburg company had to deal with organisational, financial, legal and image problems that led to a change of management. 
          One might ask how it was possible that the then world's largest automotive group by sales was unable to realise that it was selling compromised cars for so long. Certainly several factors played a role, including the organisational culture that, under the leadership of the now former VW CEO Winterkorn, was considered overly aggressive and competitive. Mr. Winkterkon used to rule with an iron fist, contributing to discourage a two-way communication with his employees, thus favouring a unidirectional ‘top-down’ communication in which problems were deliberately omitted by subordinates because they were afraid of the consequences of their ‘failures’ (NYT, 14/12/2015). This lack of freedom of expression and communication has helped to conceal and hide problems because they demonstrate personal incompetence punishable by dismissal rather than an actual limitation imposed by current technology.
          A few days after the affair broke out, Volkswagen Group CEO Martin Winterkorn submitted his resignation, denying his involvement in the affair and stating that the group needed a fresh start and therefore new leadership.
          As of 1 June 2020, the scandal has cost the Volkswagen Group approximately $33.3 billion in fines, penalties, settlements and costs to buy back cars affected by the scandal. Several government and civil lawsuits are currently pending in the United States and the European Union, the main markets where the affected cars were sold; although they continue to be legal to drive in the European Union, some consumer groups and governments have sought to ensure that Volkswagen has adequately compensated owners, as was the case in the United States.


2.	 The regulatory environment

2.1	Non-Financial Reporting Directive (NFRD) – Dir. 2014/95/UE

          Awareness on the part of governments and the European Union regarding the ineffectiveness of voluntary reporting, which can lead to unbalanced, inaccurate, inconsistent and, above all, incomparable information, led the latter to consider the idea of creating a mandatory disclosure model for non-financial information. The EU started working on the Non-Financial Reporting Directive (NFRD) in its communication titled "Single Market Act — Twelve levers to boost growth and strengthen confidence — 'Working together to create new growth'," adopted on April 13, 2011. The document introduced to achieve these objectives is the NFRD outlined in Directive No. 2014/95/EU  and approved on 22 October 2014. The regulation came into force with reference to financial years beginning on or after 1 January 2017. According to Article 19a(1), the entities to which the regulations refer are ‘public interest entities’ with more than 500 employees and which have exceeded certain size parameters (balance sheet total of EUR 20 million or total net revenue from sales and services of EUR 40 million). Exempt from the non-financial reporting obligation, although exceeding the limits, are subsidiaries, if the parent company publishes a group report.  They have to publish reports according to the principles of the ‘Triple Bottom Line’ (TBL), i.e. People, Planet and Profit.
          In November 2020, the European Commission has conducted a study and has issued a final report of the “Study on the Non-Financial Reporting Directive”. It provides data analysis as part of the ongoing monitoring of implementation of the Non-Financial Reporting Directive (NFRD). The study analysed data on more than 17 million companies, gathered survey responses from more than 200 companies and conducted interviews with over 60 stakeholders. 
It draws conclusions assessing that there were approximately 13.7 million LLCs in the EU27 and 2000 companies that were required to prepare a non-financial statement under the minimum criteria defined in the NFRD (excluding exempted subsidiaries). If the national criteria are also considered, there were about 11500 companies within the scope of national transposition of the NFRD (excluding exempted subsidiaries). The following Figure 6 shows the EU ownership structure of companies within the NFRD scope as of November 2020:
 
Figure 6

          The NFRD amends the previous directive, No. 2013/34/EU , by introducing several new features. In fact, prior to the entry into force of the Directive, the only reference to non-financial disclosure was contained in the third subparagraph of Article 19(1) of the aforementioned Directive 2013/34/EU, concerning the “Contents of the management report” and specifically envisaged the following: “The management report shall include a fair review of the development and performance of the undertaking's business and of its position, together with a description of the principal risks and uncertainties that it faces. The review shall be a balanced and comprehensive analysis of the development and performance of the undertaking's business and of its position, consistent with the size and complexity of the business. To the extent necessary for an understanding of the undertaking's development, performance or position, the analysis shall include both financial and, where appropriate, non-financial key performance indicators relevant to the particular business, including information relating to environmental and employee matters.” It is clear that this previous regulatory approach is rough and vague, leaving it up to companies to provide or not to provide non-financial information. This represents one of the main discrepancies of Directive 2013/34/EU, which led to the creation of Directive No. 2014/95/EU.


2.1.1	Real outcomes of NFRD

In 2022, some researchers from the European Journal of Finance , have conducted a study on the effect of the 2014 EU Non-Financial Reporting Directive on corporate social responsibility (CSR). We can refer to CSR as the ethical obligation of companies to contribute positively to society and the environment while conducting their business activities. It encompasses a wide range of practices and policies that go beyond financial profitability and compliance with laws and regulations. So, CSR aims to create a positive impact on society while enhancing a company's reputation, building customer loyalty, and ensuring long-term business sustainability.
          As we already mentioned earlier, the NFRD was enacted in 2014 and it requires publicly listed companies in EU member states with financial year ends on 31 December 2017 or after to include a non-financial statement in their annual reports. So, this statement should provide comprehensive information on environmental, social and employee matters. Encouraging in this way a transition of EU member states towards a more sustainable global economy (European Commission, 2014). However, the issue is that the disclosure requirement introduced by the directive is non-binding and adopted using the ‘comply or explain’ approach. This approach encompasses the faculty of the companies of not choosing to disclose the regulated information, but rather explain the reason for their non-compliance. Therefore, there is uncertainty on whether the NFRD has been successful or not in enhancing the social responsibility of the companies targeted by the Directive.
          Here is where the previously mentioned study by Cuomo F. et al. comes in help for assessing the real outcomes of NFRD in the EU context. They used a large sample of EU non-financial firms over the period 2008–2018. All of the sample firms included all non-financial EU firms, that were available on the Thomson Reuters Refinitiv database in 2008 with the exclusion of some firms headquartered in Greece and Slovenia.

          The authors initially focused on the following research hypotheses:
-	H1a: The EU NFRD increases CSR transparency in EU firms.
-	H1b: The EU NFRD does not increase CSR transparency in EU firms.
-	H2a: The EU NFRD leads to an increase in the social and environmental performance of EU firms.
-	H2b: The EU NFRD does not lead to an increase in the social and environmental performance of EU firms.

The sample spans from 2008-2018 were split into two main periods. The first one is the Pre-Directive period which ranges from 2008 to 2013. In this phase, the European Commission recognized the need for greater corporate transparency of social and environmental information across all EU member states. The second main period is the Post-Directive one, 
which spans from 2015-2018. The year 2014 was not considered since it was the year of the signing and entry into force of the Directive.
          An initial analysis shows that in the Pre-Directive period 42% of companies adopted CSR reporting models; subsequently, with the transposition of the Directive by the Member States, the percentage of companies adopting non-financial reporting methods increased to 66% (+14% compared to the pre-Directive period). The results of the models used to test the set of hypotheses have demonstrated the positive effect of the EU NFRD on CSR transparency and corporate environmental and social performance during the post-Directive period. They provide support for the hypothesis of H1a by showing that the Directive has led to an increase in the number of firms incorporating CSR transparency during the Post-Directive period. They also contribute support for H2a by demonstrating how the Directive encouraged companies to commit more to sustainable activities.
          In order to better assess the mechanisms underlying the effects of the Directive on CSR transparency and performance, they perform a number of cross-sectional analyses. 
In 2021, the European Commission has approved the Corporate Sustainability reporting Directive (CSRD) proposal , which aims at extending the CSR reporting requirements to all large companies and all companies listed on regulated markets, including listed small and medium-sized enterprises (we will go more in deep in CSRD in the following paragraphs). Due to this regulatory change, the researchers found it useful to test whether there is any association between the EU NFRD and CSR reporting and performance. The findings suggest that the NFRD encouraged companies to engage more with CSR practices. They also support the recent European Commission decision to extend the NFRD’s requirements to listed small and medium-sized enterprises, as smaller companies seem to benefit more from the NFRD’s disclosure requirements.
Another relevant factor which may have affect the compliance of the companies with regulation is the strength of the legal system in which they operate. The results have shown that the positive impact of the EU NFRD on CSR transparency is significantly stronger for companies based in countries with a stronger legal system. So, the results confirm previous studies showing that the ‘compliance or describe’ approach is more effective in countries with a stronger legal system, while there is no impact on environmental and social performance.
At the end, they investigated whether the documented increase in CSR reporting practice led to lower equity risk and cost of equity. There was actually some supportive relationship of the ‘risk mitigation view’  stated by stakeholder theory, as well as the importance of the non-financial disclosure framework in enhancing the CSR–cost of equity and risk relationship.
          In conclusion, it can be said that the application of the Directive has, on the one hand, achieved the objective of increasing the transparency and credibility of financial reporting, but on the other hand, it has not fostered the comparability of information as it leaves companies free to choose the content and method of reporting. It is important that the benefits that companies might gain from such reporting outweigh the costs they incur to process it so that even companies that are not obliged to do so are increasingly incentivised to voluntarily report on CSR and sustainability issues.
The results of the study conducted by Cuomo F. et al., confirm the importance of the European Commission (as regulator) in increasing and harmonising CSR disclosure in companies in the same region (the EU).
2.2	Corporate Sustainability Reporting Directive (CSRD)

          While the adoption of the NFRD in 2014 was a major step towards greater business transparency, users of non-financial information, mainly investors and civil society organisations, were demanding more and better information from companies about their social and environmental performance and impacts.
          In 2021, the European Parliamentary Research Service issued a briefing on the Non-financial Reporting Directive. It outlines how the NFRD and its implementation suffer from several deficiencies. The lack of publicly available information about how non-financial issues, impact companies, and about how companies themselves impact society and the environment. In addition, companies often incur avoidable and unnecessary costs and face uncertainty when deciding what, where and how to report non-financial information. Moreover, companies were under pressure to respond to additional demands for non-financial information from data providers, sustainability rating agencies and civil society.
To mitigate these drawbacks, the revision of the NFRD sought to:
-	make sure that investors have access to adequate non-financial information from companies so as to be able to take account of sustainability-related risks, opportunities and impacts in their investment decisions;
-	diminish the unnecessary burden on business relating to non-financial reporting.
-	ensure that civil society organisations and others have access to adequate non-financial information from companies to be able to hold them accountable for their impacts on society and the environment.
          On 11 December 2019, the European Commission announced its intention to revise the NFRD in order to improve the quality of non-financial information provided by companies, thereby strengthening the financing strategy for sustainable investments. The Commission invited the European Financial Reporting Advisory Group  (EFRAG) to start preparatory work on the development of EU-wide non-financial reporting standards.  In order to improve the comparability, reliability and relevance of the information disclosed by companies under the NFRD, a common set of non-financial reporting standards will be necessary. Such standards could also improve the accuracy of non-financial information, its application and digitization through the use of a standard taxonomy. 
2.2.1	The objective and transposition

The Corporate Sustainability Reporting Directive (Directive 2022/2464/EU ) is bringing a ‘revolution’ to corporate management, whose legitimacy and freedom of action are being increasingly conditioned by compliance with ESG issues. This new CSRD regulation dictates the use of standardized sustainability reporting standards, demanding both qualitative and quantitative disclosures. The CSRD went into effect on January 5, 2023, and EU Member States have until early July 2024 to incorporate its provisions into national law (as published in Directive 2022/2464/EU). It is much more than a reporting directive. It can be considered as a transformational and horizontal initiative that impacts many functions within organisations. Chief Executive Officers, Chief Financial Officers, Chief Security Officers and Chief Information Officers, in other words, entire management teams, will be responsible for new day-to-day CSRD tasks. In addition, supervisory boards and audit committees must oversee a company’s sustainability reporting.
          As far as it concerns the implementation timeline, we can start by stating that Directive 2014/95/EU requires certain large undertakings and groups to report on sustainability information (as stated in Directive (EU) 2022/2464). However, the growth of various users' needs for sustainability information induces the inclusion of more categories of undertakings. As a result, the CSRD requires all sorts of undertakings, except micro undertakings, whose securities are traded on a regulated market in the Union, to report sustainability information. Moreover, parent undertakings of large groups are now required to prepare sustainability reports at a group level. 
Article 5 of Directive (EU) 2022/2464 defines the exact transposition of the CSRD, meaning the process of EU directives' incorporation into EU member states' laws. In addition, Article 5 states the required compliance time for various categories of undertakings.
The date (1st of January) marks when the CSRD goes into effect, signifying the official amendment of the NFRD by the CSRD. Therefore, all companies falling under its scope will be subjected to its multiple requirements. Not all companies will be impacted at the same moment. Article 5 of Directive (EU) 2022/2464 specifies that Member States have until July 6, 2024, to transpose the directive within their national laws and make the required provisions stated by the directive. 
          The following Figure 7 depicts the CSRD implementation timeline and criteria for different company types:
Type of company	Size criteria	First reporting year
Large EU public interest entities currently under NFRD	More than 500 employees	2025, covering the 2024 financial year
Large EU companies not yet covered by NFRD	Must meet at least two of the following criteria: 
- At least 250 employees on average during the financial year 
- Annual net turnover exceeding  €40 million 
- Total assets exceeding €20 million	2026, covering the 2025 financial year
Listed SMEs on regulated EU markets (excluding listed micro-undertakings )	Must meet at least two of the following criteria: 
- At least 50 employees on average during the financial year 
- Annual net turnover exceeding €8 million 
- Total balance sheet exceeding €4 million	2027, covering the 2026 financial year
Non-EU companies	Must meet both of the following criteria: 
- Annual net turnover exceeding €150 million in the EU 
- At least one subsidiary or branch in the EU with net turnover exceeding €40 million	2029, covering the 2028 financial year
Figure 7

          
An American multinational law firm with 14 offices located in the United States, Asia and Europe, called Ropes & Gray, has recently introduced a CSRD Transposition Tracker. The firm has a leading ESG, CSR, and business and human rights compliance practice. It offers to its clients a comprehensive approach in these subject areas through a global team with members all around the world. They continuously update the tracker that contains CSRD developments across the 27 EU member states and three EEA EFTA countries (Iceland, Liechtenstein and Norway). As of April 30, 2024, according to the analysis, so far eight countries have adopted laws to implement the CSRD (at least partially), while another eight have proposed legislation and seven have started consultations on the transposition process. The following Figure 8 illustrates the specific countries. In dark blue the countries that have already adopted transposition laws, in sky blue the countries that have proposed legislation and in light blue the Member States that have launched a consultation on the subject.

 
Figure 8

We can acknowledge that the EU member states are progressively and regularly implementing the CSRD regulation. As we have already mentioned earlier, they have until July 6, 2024, to transpose the CSRD into their national laws.
2.2.2	The adoption of European Sustainability Reporting Standards (ESRS)

          In 2021, the European Commission mandated the European Financial Reporting Advisory Group (EFRAG), to come up with a proposal of European Sustainability Reporting Standards (ESRS). The EFRAG is a private association established in 2001 with the encouragement of the European Commission to serve the public interest. The purpose of the enactment is to harmonise standards globally to simplify the reporting process, in particular with the GRI Standards and the IFRS Sustainability Disclosure Standards (IFRS SDS), the global standards for sustainability reporting developed by the International Sustainability Standards Board (ISSB) under the supervision of the IFRS Foundation. EFRAG engaged in extensive consultations with numerous stakeholders with the aim of create a set of standards that were both rigorous and practical, addressing the needs of users and preparers of sustainability information.
          The first set of draft standards were submitted to the European Commission in June 2023. After this, the public consultation happened and they came up to revise the draft standards, in order to balance them to the needs of the companies. So, the final set of standards was adopted by the European Commission through a Delegated Act in October 2023. 
          In the first draft, EFRAG has created 12 standards. The first two standards are so- called cross-cutting standards, ESRS 1 General requirements and ESRS 2 General disclosures, meaning they apply to all topics . Within the environmental theme, five standards have currently been created: Climate change (ESRS E1), Pollution (ESRS E2), Water and marine resources (ESRS E3), Biodiversity and ecosystems (ESRS E4), and Circular economy (ESRS E5). In the social topic, there are four standards; Own workforce (ESRS S1), workers in the value chain (ESRS S2), affected communities (ESRS S3), and consumers and end-users (ESRS S4). In the last topic, governance, there is one topical standard: business conduct (ESRS G1). Among the topical standards, the ESRS E1 Climate change is mandatory for all undertakings in the scope of the CSRD directive regardless of their material assessment. In addition, the ESRS S1-S4 is mandatory, like ESRS 1, but only for undertakings with more than 250 employees .
          
          The following Figure 9 illustrates the current structure of the ESRS:

 
Figure 9


-	ESRS 1 – General Requirements

          As stated by the EFRAG, the aim of the standard is to provide the structure and the various key concepts facilitate undertakings’ sustainability reporting in accordance with Directive 2013/34/EU as amended by the CSRD. Undertakings must disclose all material information, based on an impact materiality assessment, on positive and negative sustainability-related impacts, risks, and opportunities regarding environmental, social, and governance matters. The presentation regarding the sustainability-related information shall be integrated into the management report of the undertaking. 



-	ESRS 2 – General Disclosures

          The objective of the second cross-cutting standard is to communicate the specific disclosure requirements that companies must disclose on all topical standards, independently of the materiality of the sustainability matter considered. These are mandatory for all companies (falling under the scope of the CSRD), regardless of their industry, striving for global relevance across all sustainability matters. Nonetheless, it shall cover reporting areas of governance (GOV), strategy (SBM), impact, risk and opportunity management (IRO), and metrics and targets (MT).
1.	Governance (GOV): need to disclose the structure of the supervisory bodies and the governance measures implemented to manage the impacts, risks and opportunities;
2.	Strategy (SBM): the way in which the company matches the IRO’s with the stakeholders’ needs (through strategies);
3.	Impacts, risks and opportunities (IRO): processes implemented by the firm in order to assess the IRO’s and their outcomes;
4.	Metrics and targets (MT): the various metrics and targets integrated for the sustainability topics.


-	Topical ESRS












          The concept of double materiality is at the heart of EFRAG's development of ESRS. The analysis of the latter has been considered by the EFRAG as a key point of the CSRD. In fact, the European Commission has made the topics of the CSRD subject to a double materiality assessment. The double materiality assessment can be complex and can create challenges for the companies.


The ESRS adopt a dual materiality perspective, requiring firms to report on environmental, social and governance topics if the latter are considered material according to either or both financial and impact materiality definition.
Given the above information, write two A4 pages of introduction and conclusion of the bachelor thesis.