Preparing for the EU’s Corporate Sustainability Reporting Directive (CSRD)

The European Union’s Corporate Sustainability Reporting Directive (CSRD) represents a significant step forward in enhancing transparency and standardization in sustainability reporting. As an evolution of the earlier Non-Financial Reporting Directive (NFRD), the CSRD sets new requirements and broadens the scope of reporting for companies within the EU. Approximately 50,000 companies are expected to have to adhere to the CSRD reporting requirement, and these companies are both within and without the EU’s borders.

Here’s what you need to know to prepare for its implementation and reporting requirements.

Key Takeaways

• Extended Scope: The CSRD applies to a broader range of companies, including all large companies and those listed on regulated markets.
• Phased Implementation: Different reporting start dates based on company size and previous reporting requirements.
• Double Materiality: Companies must report on both financial and environmental/social impacts.
• Mandatory Audit and Digital Format: Reports must be audited and presented in a machine-readable format.
• Standardized Reporting: Development of EU Sustainability Reporting Standards (ESRS) ensures consistency and comparability.

Scope and Applicability

Extended Coverage

The CSRD extends the requirements of the NFRD by including all large companies and those listed on regulated markets, with the exception of listed micro-enterprises. This expansion impacts nearly 50,000 companies across the EU.

Phased Implementations

The directive’s implementation will be phased in starting in 2024:

2024: Companies already subject to the NFRD will start reporting for the financial year 2023.

2025: Large companies not previously subject to the NFRD will begin reporting for the financial year 2024.

2026: Listed SMEs, small and non-complex credit institutions, and captive insurance undertakings will start reporting for the financial year 2025.

Reporting Requirements

Double Materiality Perspective: Under the CSRD, companies must report on how sustainability issues affect their business performance (financial materiality) and the impact of their operations on people and the environment (environmental and social materiality).

Mandatory Audit: Sustainability reports must be audited to verify their accuracy, ensuring reliability for stakeholders.

Digital Format: The information must be reported in a machine-readable format and tagged electronically, making it easily accessible and usable.

Standards

Development of EU Sustainability Reporting Standards (ESRS)

The European Financial Reporting Advisory Group (EFRAG) is responsible for developing detailed sustainability reporting standards. These standards will provide more specific guidance on reporting requirements, ensuring consistency and comparability across reports.

Goals and Implications

Enhanced Transparency and Comparability

The CSRD aims to standardize sustainability reporting across the EU, making it easier for investors, regulators, and other stakeholders to assess and compare the sustainability performance of companies.

Support for Sustainable Investment

By providing more reliable and comprehensive sustainability information, the CSRD supports the objectives of the EU Green Deal and facilitates sustainable investment decisions.

Global Influence

The CSRD is expected to influence sustainability reporting standards and practices worldwide, given the global operations of many companies affected by the directive.

Conclusion

The CSRD is a transformative initiative that aligns with global efforts to ensure that corporate activities contribute positively to sustainable development. Companies affected by this directive will need to integrate sustainability deeply into their reporting and operational strategies, fostering greater corporate accountability and promoting a sustainable economic model. As the CSRD takes effect, businesses must prepare to meet these new requirements and contribute positively to sustainable development on a global scale.