According to Reuters, this measure is meant to discourage companies from greenwashing or making exaggerated claims in order to attract investors.

Representatives from the European Parliament and EU governments reached a provisional agreement on the new reporting requirements that large companies will have to follow.

"This aims to end greenwashing and lay the groundwork for sustainability reporting standards at the global level", a committee member stated.

Companies that have over 250 employees and a turnover of 40 million euros will have to disclose environmental, social and governance (ESG) risks and opportunities and the impact that their activities have on the people and the environment.

This rule will apply to all listed and unlisted companies that fall under the criteria.

Lighter reporting standards might be imposed on smaller listed companies and they can opt out of reporting until 2028.

Pascal Durand, who led negotiations for the parliament, said that "from now on, having a clean human rights record will be just as important as having a clean balance sheet."

The rules belong to a larger set of standards that explain what green investment is and how ESG disclosures help with the transition to a cleaner future.