Corporate Sustainability Reporting Directive (CSRD): a short guide

The Corporate Sustainability Reporting Directive (CSRD) is a groundbreaking regulatory framework introduced by the European Commission in November 2022. It aims to establish comprehensive standards for the reporting of climate and environmental impacts by nearly 50,000 European Union (EU) companies. CSRD is mandatory for organisations that meet the criteria, ensuring businesses disclose greenhouse gas emissions and comply with sustainability reporting standards.

This directive replaces and enhances the Non-Financial Reporting Directive (NFRD) and addresses several critical aspects of sustainability reporting. In this short guide, we’ll explore the key elements of the CSRD and its implications.

Why was the CSRD adopted? 

The adoption of the CSRD is driven by the European Union’s (EU) commitment to transparency and accountability regarding sustainability impacts. The NFRD, its predecessor, laid the foundation for sustainability reporting by large companies. However, the European Commission found that existing reports lacked depth and comparability, leaving investors and stakeholders with insufficient information. This deficiency, known as the “accountability gap,” hindered the growth of sustainable investments.

The CSRD addresses these shortcomings by aiming to: 

Raise the Bar: The EU believes that consumers and investors deserve comprehensive information about the sustainability impact of businesses. 

Enhance Quality: Improving the quality of sustainability reporting by companies to promote a culture of greater public accountability. 

Close the Gap: Ensuring that even companies based outside the EU with EU subsidiaries adhere to the CSRD, creating a global impact. 

Requirements of the CSRD

The European Financial Reporting Advisory Group (EFRAG) developed the European Sustainability Reporting Standards (ESRS) for the CSRD, which detail the rules and requirements for reporting sustainability impacts, opportunities, and risks. These standards are a crucial component of the CSRD and mark a significant step toward its implementation.

One of the defining features of the CSRD is its requirement for “double materiality.” Companies must reveal the risks they face from climate change and the effects they may have on the climate and society. This shift encourages businesses to reflect on their role in driving climate change.

The CSRD requires companies to submit their sustainability data in a standardised digital format. This is done to simplify sustainability reporting, which has been complicated by different formats. The goal is to make it easier to understand and compare information from different companies. Ultimately, this standardisation is expected to prevent false claims of sustainability and support the growth of the EU’s social market economy. It will also lay the foundation for global sustainability reporting standards.

Who does the CSRD apply to?

The CSRD significantly broadens the scope of companies subject to sustainability reporting requirements. It applies to: 

• Large Companies – Even Those Outside the EU
• Companies that meet at least two of the following three conditions must comply with the CSRD:
  • €40 million in net turnover.
  • €20 million in assets.
  • 250 or more employees.
• Additionally, non-EU companies with a turnover exceeding €150 million in the EU must also comply. 

Small and Medium Enterprises (SMEs): 

The CSRD does not place any additional obligations on small businesses, except for those that have their securities listed on regulated markets. To facilitate reporting for listed SMEs, simplified standards are available. To facilitate reporting for listed SMEs, simplified standards are available. The European Commission is looking into creating specific rules for non-listed SMEs. These rules will simplify the process of providing information to banks, clients, and investors for these businesses. Additionally, they will aid in the transition towards a sustainable economy.

What needs to be disclosed under the CSRD?

Companies must disclose sustainability information in their management reports, aligning financial and sustainability reporting. Data must be submitted in a standard digital format for easy checking and comparison in the European database. An auditor must evaluate the submitted data, ensuring its reliability through “limited third-party assurance.”

When will the CSRD go into effect? 

The CSRD was adopted in late 2022, and its implementation will occur between 2024 and 2028. Key dates include: 

From January 1, 2024: Large public-interest companies already subject to the NFRD must comply, with reports due in 2025. 

From January 1, 2025: Large companies not presently subject to the NFRD, with reports due in 2026. 

Starting January 1, 2026: Listed SMEs and other enterprises are expected to submit reports by 2027. However, SMEs have the option to defer until 2028.

Take action now!

While 2025 might seem distant, early preparation is crucial for smooth compliance with CSRD requirements. Beyond the CSRD, other regulatory bodies are also considering mandatory sustainability reporting. Preparing calculations and reporting now will keep your company ahead of the curve as new regulations emerge. 

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