EU Corporate Sustainability Reporting Directive
The Corporate Sustainability Reporting Directive (CSRD) is an EU directive that aims to provide both investors and consumers with knowledge about businesses’ sustainability impact. CSRD replaces and is an extension of the scope and reporting requirements of the Non-Financial Reporting Directive (NFRD). While the NFRD only provided guidelines for ESG reporting, the CSRD introduces mandatory reporting standards, known as the ESRS (European Sustainability Reporting Standards).
The new Directive is estimated to affect almost 50.000 companies in the EU starting from 2024 and as it was with the NFRD not only are the largest corporations affected but also listed SME’s.
WHO
The CSRD will more than quadruple the number of companies that are required to report on sustainability compared to NFRD. While the NFRD covered around 11.000 companies the CSRD will cover almost 50.000.
Large public interest companies with over 500 employees already covered by the NFRD will have to report under the CSRD from the financial year 2024 for reports published in 2025.
And for the financial year 2025, all large companies not already presently subjected to the NFRD will have to submit reports in 2026. This means all companies with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets.
It is not only large enterprises that are subjected to the new directive. From 2026 all publicly listed SMEs and other undertakings will have to publish reports in 2027. SMEs can postpone reporting until 2028.
The European Commission has also proposed developing separate standards that non-listed SMEs could voluntarily report under. These standards would reflect the SME’s smaller size and capabilities and are expected to make it easier for SMEs to report sustainability information to banks, clients, and investors.
WHAT
The CSRD and the ESRS cover 12 topical reporting standards. These include reporting on the environment, social, and governance (ESG).
Under environment, there are standards for Climate Change, Pollution, Water and Marine Resources, Biodiversity and Ecosystems, as well as Resource Use and Circular Economy.
Social covers; Own Workforce, Workers in the Value Chain, Affected Communities, and Consumers and End-Users.
While Governance only covers Business Conduct such as Corruption, Bribery, and Lobbying.
Reporting under all 12 topical reporting standards seems a daunting task. However, it is expected that companies reporting perform a Double Materiality Analysis to undercover which and which parts of the 12 reporting standards are material for the reporting company. Companies will only have to report on standards that are material for their business.
The Double Materiality concept has two dimensions: impact materiality and financial materiality. This means that companies will have to assess risks and opportunities for their business, both from a financial standpoint and also from an impact standpoint.
WHAT IS NEXT
Now 2024 or even 2025/2026 might seem very far into the future. However, the CSRD will mandate reporting on Scope 3 emissions under the Climate Change reporting standard. This means reporting on indirect emissions from the company’s upstream and downstream emissions in the value chain. This is no easy task to accomplish and definitely not an overnight process.
Therefore, we recommend companies get started as soon as possible in order to get ahead of the CSRD requirements.
Want help getting started?
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