Large companies covered by the EU’s Corporate Sustainability Reporting Directive will face new limits on how much sustainability information they can demand from smaller firms in their supply chains under a “value chain cap” agreed by the European Parliament and Council.
Companies that fall under the directive must report on sustainability risks, impacts and opportunities, including those linked to suppliers and other business partners, the European Commission said on Wednesday.
Gathering that information can create a “trickle-down effect” that adds to the reporting burden for smaller businesses in the value chain.
Under the new cap, companies subject to the directive will be prohibited from requiring firms in their value chain with 1,000 employees or fewer to provide more sustainability information than is set out in a separate voluntary reporting standard to be adopted by the European Commission via a delegated act.
The cap applies only to requests made to meet the directive’s reporting requirements and does not affect information requests made for other purposes.
How the voluntary standard would work
The draft voluntary standard under consultation is structured in two parts — a basic module designed for micro-undertakings and a comprehensive module that builds on the basic module — and each disclosure is labelled as “necessary”, “necessary if applicable”, “voluntary”, or information to consider when reporting sector details, the Commission said.
Under the draft delegated act, companies reporting under the directive would only be able to require value-chain firms to provide disclosures marked “necessary”, and could not require information falling into the other categories. The cap would therefore cover all “necessary” disclosures in both modules.
Some disclosures marked “necessary” for companies with 11 to 1,000 employees are marked “voluntary” for companies with 10 employees or fewer, meaning the smallest firms would have to provide less information under the cap.
The cap does not prevent large companies from asking for additional information beyond the limit, but they would have to clearly identify what exceeds the cap and inform the smaller company it has a statutory right to refuse.
The voluntary standard would not be mandatory for companies outside the directive’s scope, and the cap “does not impose or imply any obligation” on value-chain companies to provide sustainability information.
