Earlier this year, the Corporate Sustainability Reporting Directive (CSRD), the new European directive on sustainability reporting, came into force. 50,000 companies across Europe will have to provide insight into their activities’ impacts on both people and the environment. What companies are we talking about? What and when do you need to report? And how do you leverage the CSRD for your business? You can read all about this here.
With the Green Deal, Europe is aiming to transform its economy and become a climate neutral continent by 2050. To turn this ambition into a reality, it launched the Sustainable Finance Action Plan, among other things, which includes legislation for both financial and non-financial companies. A part of that plan is the Corporate Sustainability Reporting Directive, or CSRD. This directive sets the standard by which numerous large European companies will have to report. The CSRD replaces the Non-Financial Reporting Directive (NFRD), which already required reporting for listed companies, banks and insurance firms. The CSRD not only broadens the directive’s scope, but also expands its reporting requirements.
The CSRD significantly increases the number of companies subject to sustainability reporting. While approximately 11,700 companies were covered by the NFRD, up to 50,000 European companies are affected by the CSRD: five times more.
Those companies are:
‣ All listed companies, including SMEs
‣ Companies of public interest
‣ All large companies that meet two of the following three criteria:
Although the CSRD does not put non-listed SMEs under any obligation to report, smaller companies will be faced with expectations from their clients and other stakeholders. The whole market mechanism will be affected by the Green Deal and the CSRD, so SMEs will also need to get on board.
The reporting requirements will be implemented in four successive stages:
The European Parliament officially adopted the CSRD in November 2022. Member states now have two years to incorporate the directive into national legislation. That transposition will not affect the timing. However, member states may decide to set the bar higher than Europe, to award fines for non-compliance with the new law, or to tighten the criteria for mandatory reporting.
Companies must publish general information on the strategy, business models, organisation and governance they implement with the aim of achieving a climate-neutral economy. The way they involve various stakeholders, ranging from financial players to employees, customers, NGOs, local residents, etc. in the creation of their sustainable strategy should also be described in detail.
The heart of the report is the sustainability information, which should be structured around three themes: Environment, Social and Governance (ESG).
In the interest of helping companies under the CSRD to report on a standardised basis, the European Financial Reporting Advisory Group (EFRAG) drafted 12 technical standards, collectively known as the European Sustainability Reporting Standards (ESRS). These standards aid in the interpretation and implementation of the CSRD and ensure that the data is auditable and comparable. In subsequent blog articles, we will zoom in on the ESRS.
The CSRD introduces a number of new concepts:
Finally, it is important to note that the CSRD is inextricably linked to the EU Taxonomy and its Delegated Acts. The EU Taxonomy is the European ‘sustainability catalogue’, which unambiguously defines the technical requirements for sustainable economic activities and investments by sector and activity.
Sustainability reporting is becoming an obligation, but you would do well to look beyond it. Here are five reasons why a sustainability report will benefit your business more than being a mere act of compliance:
The CSRD will involve extensive changes for companies. It is best to take steps now in order to be well-prepared for 2025. Our consultants are happy to guide you every step of the way, from strategy to reporting. Contact us at mail@pantarein.be.
