A closer look at CSRD (Corporate Sustainability Reporting Directive)

CSRD (Corporate Sustainability Reporting Directive) is another step forward when it comes to sustainability reporting for EU companies. For many organisations, it will be a challenge that requires elaborate efforts, but it also presents an opportunity for forward-thinking companies to stay ahead of the curve. In this article, we’ll have a closer look at the EU CSRD: which companies need to comply, when does it come into effect, and what are the implications?

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CSRD definition

CSRD stands for Corporate Sustainability Reporting Directive. It is an EU ESG (Environmental Social Governance) standard. It is an ambitious sustainability reporting standard that was officially adopted on the 10th of November 2022. The CSRD will make the European Union a global leader in the area, and CSRD requirements will present new challenges for many companies active in the EU.

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CSRD replaces NFRD

Firstly, to avoid any confusion, let’s quickly confirm that the CSRD updates and replaces a previous standard, the Non-Financial Reporting Directive (NFRD, Directive 2014/95/EU). This transition means that corporation’s sustainability reporting needs to become more detailed and comply with EU’s standards, and also that the data has to be tagged according to EU taxonomy (the EU taxonomy for sustainable economic activities is a way to define sustainability and classify the activities).

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It is estimated that the amount of companies that need to comply with the standards will quadruple, from approximately 12 000 covered by the NFRD to approximately 50 000 now covered by the CSRD ESG. 

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The emergence and development of sustainability reporting 

Sustainability reporting is the practice where companies and other organisations analyse their impact on the environment and society as a whole. Over several decades, the demands from law-makers, clients and partners have increased.

However, it’s not only about complying with laws and obligations. Sustainability reporting can help reduce the organisation’s negative environmental and social impact, while also saving on costs. Companies who stay ahead have a lot to gain from it, e.g. in the eyes of consumers, employees and partners.

This continuous rise in sustainability reporting has led to adopting the CSRD regulations, which will be implemented into performance tracking reporting in 2024.

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Regulations and requirements

CSRD regulation includes several areas of sustainability. Some of the things that need to be disclosed in accordance with the directive are:

• The organisation’s environmental impact (e.g., sustainability targets and risks)
• Social aspects, such as the treatment of employees and working conditions for employees
• Respect for human rights
• Mitigation of corruption and bribery
• Diversity on the company board (e.g. age, gender, educational and professional background)

Many companies are mostly thinking of CSRD reporting in terms of the sustainability targets and environmental aspects. They will need to report on several factors, such as the impact on climate change, energy efficiency and the scarcity of raw materials. The affected companies will need to identify its impact and establish a baseline for reporting. 

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Which companies does the CSRD apply to?

The CSRD directive applies to companies that fulfill at least two of the following criterias: 

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• More than 250 employees
• More than 50 million euro in annual revenue
• More than 25 million euro in total assets

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Publicly listed equities with more than 10 employees or €20M revenue will also be affected by the CSRD. 

This is the first step of regulation. In the following years, more and more companies will be required to report according to the EU CSRD standards. With that in mind, it could be good to start preparing your company for changes to come, even if you’re not among the ones who will have to gather performance tracking data in 2024.

The CSRD is an EU directive that applies to EU-based companies. However, it also concerns organisations abroad that have a presence in the European Union. International and non-EU companies with more than 150 million euro in annual EU revenue will be required to deliver CSRD-adjacent sustainability reports in the future.

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When does CSRD come into effect?

The CSRD legislation was proposed and adopted in April 2021, and the directive comes into effect across the European Union in 2023. Companies who are affected by CSRD will need to start tracking their performance in 2024, and report in early 2025. 

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However, in the coming stages of CSRD, SMEs will also have to start complying with the directive’s regulations. The planned gradual transition looks like this:

• Reporting in 2025 (financial year 2024) for companies already subject to the NFRD
• Reporting in 2026 (financial year 2025) for large companies that are not yet subject to the NFRD
• Reporting in 2027 (financial year 2026) for listed SMEs (except micro undertakings), small and non-complex credit institutions and captive insurance undertakings
• Reporting in 2029 (financial year 2028) for third-country undertakings with a net turnover above 150 million euro in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds

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Transitioning to CSRD requirements

For many companies it is time to start preparing for the Corporate Sustainability Reporting Directive, and it can be a challenging and confusing transition. If you need help complying with the upcoming regulations, feel free to reach out to us at EIVEE.

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Sources

1. Corporate Social Sustainability Reporting, European Commission. Available at: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en