The Corporate Sustainability Reporting Directive (CSRD) is a significant regulatory development in the realm of sustainability reporting within the European Union that is coming into force over the next few years. It builds upon the existing Non-Financial Reporting Directive (NFRD) and aims to enhance and standardize sustainability disclosures, ensuring that stakeholders have access to reliable and comparable information on companies’ ESG impacts. Read on to find out what changes are from NFRD and if your business will be within its scope:
Who is in Scope of CSRD and When
One of the most notable changes under the CSRD is the expansion of its scope. While the NFRD applied to approximately 11,000 large public-interest entities, the CSRD will cover nearly 50,000 companies. The following four groups of companies are or will be subject to CSRD requirements:
- For EU listed entities which have securities listed on an EU exchange and have over 500 employees, or which already report to NFRD, CSRD already started applying from Jan 1 2024, assuming a calendar financial year-end.
- For EU large entities which meet two of the following criteria:
- More than 250 employees
- €40 million or more in net turnover
- €20 million or more in total assets
CSRD applies from Jan 1 2025, assuming a calendar financial year-end
- For small and non-complex credit institutions, captive insurance undertakings, and SMEs which have securities listed on an EU exchange and also meet at least two of the following criteria:
- More than 50 employees during the relevant financial year
- €8 million or more in net turnover
- €4 million or more in total assets
CSRD applies from Jan 1 2027, assuming a calendar financial year-end, with an option to opt-out until 2028.
- For non-EU entities with at least €150 million or more in net turnover in the last 2 years generated in the EU and for which one of the following two criteria also applies:
- Has an EU subsidiary that is classed as an EU Large Entity
- Has an EU branch with €40 million or more in net turnover
CSRD applies from Jan 1 2028, assuming a calendar financial year-end
Key Requirements of CSRD
- Detailed Sustainability Reporting: Companies are required to report on a wide range of sustainability issues, including environmental factors (such as climate change, biodiversity, and pollution), social matters (such as employee treatment, diversity, and human rights), and governance issues (such as business ethics and corruption). This comprehensive approach ensures that stakeholders have a holistic view of a company’s ESG performance.
- Double Materiality: The CSRD introduces the concept of double materiality, meaning companies must report on how sustainability issues affect their business and how their business impacts people and the environment. This dual perspective ensures that companies are accountable for their role in broader societal and environmental contexts.
- Alignment with European Sustainability Reporting Standards (ESRS): The CSRD mandates that companies align their reporting with the ESRS, which are being developed by the European Financial Reporting Advisory Group (EFRAG). These standards provide detailed guidance on the information companies need to disclose, promoting consistency and comparability across reports.
- Audit and Assurance: To enhance the reliability of sustainability information, the CSRD requires companies to obtain limited assurance for the reported data. This is a step up from the NFRD, which did not mandate external assurance, and it underscores the importance of trustworthy sustainability disclosures.
- Digital Reporting: Companies will need to prepare their sustainability reports in a digital format, specifically in XHTML, and tag them according to the European Single Electronic Format (ESEF). This will facilitate the accessibility and comparability of data across the EU.
Preparing for Compliance
To comply with the CSRD, companies in scope should start by conducting a thorough assessment of their current reporting practices and identifying gaps relative to the new requirements. Engaging with stakeholders to understand material ESG issues and implementing robust data collection and management systems will be crucial. Companies should also consider investing in training and resources to ensure they are prepared for the assurance process and the digital reporting requirements.
Contact us today to see how our solutions can help your business prepare for CSRD