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EU Legislation

Sustainability Reporting & Due Diligence Legislation

The European Green Deal sets out the EU’s strategic approach to the development of a clean and circular economy, while supporting growth, protecting investment and future-proofing jobs. In doing so, it aims to make Europe the first climate-neutral continent in the world, committing to this by 2050. The EU has also committed to emissions reductions targets of 55% by 2030 and 90% by 2040, in comparison to 1990. The Fit for 55 package is a set of laws aimed at achieving these greenhouse gas emissions and climate neutrality targets, including the EU Emissions Trading Scheme (ETS) and Carbon Border Adjustment Mechanism (CBAM).

In this context, the following pieces of EU legislation continue to play a key role in setting a range of sustainability reporting requirements for companies (note: these are being reviewed as part of the EU Omnibus Package to simplify sustainability legislation):

  • The EU Corporate Sustainability Reporting Directive (CSRD) currently applies to large and listed companies only, including some non-EU firms. Companies subject to the CSRD have to report according to European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG). The European Commission (EC) is currently seeking to simplify reporting requirements so that CSRD only applies to the largest companies (more than 1000 employees) that have the biggest impacts on people and the environment, while also ensuring that reporting requirements on large companies do not burden smaller companies in their value chains.
  • The EU Corporate Sustainability Due Diligence Directive (CSDDD) will apply from 2027 to large and listed companies only, including some non-EU firms. Companies subject to CSDDD must conduct appropriate human rights and environmental due diligence with respect to their own operations, as well as those of their subsidiaries and suppliers, with a requirement to report annually. The European Commission (EC) is currently seeking to simplify reporting requirements so that CSDDD only applies to the largest companies (more than 3000 employees), and only from 2028.
  • The EU Deforestation-free Products Regulation (EUDR) applies to all large and medium sized companies (from start of 2026) and all SMEs (from mid-2026) that are responsible for placing on the EU market, importing or exporting commodities like cattle, wood, cocoa, soy, palm oil, coffee, rubber, plus derived products like leather, chocolate, tyres, furniture. large and medium companies, then micro and small enterprises. Operators and traders must be able to prove that their products do not originate from recently deforested land or have contributed to forest degradation, with a requirement to provide due diligence statements to authorities.
  • The EU Sustainable Finance Disclosure Regulation (SFDR) was put in place to attract private funding to help Europe make the shift to a net-zero economy. It only applies to financial market participants in the EU (i.e. those buying and selling financial assets), setting out how they have to disclose sustainability information, with the aim of informing the choices of investors seeking to put their money into companies and projects supporting sustainability objectives. The SFDR is also designed to allow investors to properly assess how sustainability risks are integrated in the investment decision process.