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Everything You Need to Know About the Corporate Sustainability Reporting Directive (CSRD)

Picture of Emerald Power By  Emerald Power  ·  4 minute read

As sustainability becomes an ever-greater priority for businesses globally, regulatory frameworks are evolving to ensure companies actively contribute to environmental, social, and governance (ESG) goals. One of the most impactful of these frameworks is the Corporate Sustainability Reporting Directive (CSRD), introduced by the European Union (EU). Whether you’re a business leader, compliance officer, or ESG enthusiast, this article provides a comprehensive overview of CSRD, its implications, and why it matters.

What Is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is a regulatory update to the EU’s previous Non-Financial Reporting Directive (NFRD). Its goal is to enhance and standardise sustainability reporting across European companies, expanding the scope and depth of requirements beyond what was stipulated under the NFRD.

The CSRD requires businesses to publicly disclose how their operations impact the environment and society. It covers a wide range of ESG topics, including climate change, human rights, diversity, and governance practices. The directive is designed to improve transparency and ensure stakeholders—investors, customers, and regulators—can access reliable, comparable ESG data.

Key Features of the CSRD

Here are the core aspects of the CSRD that set it apart from its predecessor, the NFRD:

  1. Wider Scope: The CSRD significantly expands the number of companies required to report. Under the NFRD, only large public-interest entities with more than 500 employees were obliged to disclose non-financial information. The CSRD lowers this threshold, now covering all large companies (listed or unlisted) that meet two of the following three criteria:

    • Over 250 employees
    • €40 million in turnover
    • €20 million in total assets

    In addition, smaller publicly listed companies will also be subject to the directive.

  2. Mandatory Assurance: A significant change in the CSRD is the requirement for third-party assurance of sustainability information. Companies must now have their ESG reports independently verified, akin to financial audits.

  3. Increased Detail in Reporting: The CSRD mandates more specific and granular information concerning sustainability risks, opportunities, and impacts. It places a strong emphasis on double materiality, meaning companies must report on both how sustainability issues affect their financial performance and how their operations impact the environment and society.

  4. Alignment with EU Sustainability Goals: The CSRD is aligned with the EU Green Deal and other sustainability initiatives such as the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy. This integration supports the EU’s goal of achieving carbon neutrality by 2050.

  5. Digital Reporting: The directive also encourages digital, machine-readable reports, facilitating easier access and analysis of sustainability data.

Timeline for Implementation

The CSRD will be rolled out over several years to give businesses time to adapt. Key dates include:

  • 2024: Large public-interest companies already subject to the NFRD must report under CSRD standards for the financial year 2024, with reports published in 2025.
  • 2025: Other large companies must begin reporting for the financial year 2025, with reports published in 2026.
  • 2026: Listed small and medium-sized enterprises (SMEs), as well as non-EU companies with EU operations, will be required to start reporting from 2026, with the first reports published in 2027.

Who Needs to Comply with the CSRD?

The CSRD affects a broad range of companies, both within and outside the EU:

  • Large companies in the EU: Any company meeting the size thresholds of 250 employees, €40 million in turnover, or €20 million in total assets.
  • SMEs: Publicly listed SMEs will also need to comply, though they can opt for a temporary exemption until 2028.
  • Non-EU companies: If a non-EU company generates more than €150 million in net turnover within the EU and has at least one subsidiary or branch in the EU, it too will be subject to the CSRD.

What Does the CSRD Mean for Businesses?

While the CSRD imposes more stringent reporting requirements, it also offers opportunities for companies to gain a competitive edge through enhanced sustainability practices. Here are some key considerations:

  1. Greater Transparency: The directive requires businesses to be more transparent about their sustainability efforts, helping to build trust with consumers, investors, and regulators. Companies with strong ESG practices may become more attractive to investors and position themselves for long-term success.

  2. Increased Administrative Workload: On the downside, businesses will face increased administrative tasks, especially around gathering and verifying sustainability data. Many companies will need to invest in new systems, hire ESG specialists, and prepare for external audits.

  3. Improved Risk Management: The focus on double materiality encourages companies to proactively identify sustainability risks and mitigate them before they become significant. In the long term, this could lead to improved risk management and resilience against environmental and social changes.

  4. Alignment with Investor Expectations: As investors increasingly factor in ESG considerations when making decisions, complying with the CSRD can provide businesses with the transparency that investors demand, potentially improving their attractiveness to capital markets.

  5. First-Mover Advantage: Companies that swiftly adapt to the CSRD may gain an advantage by being recognised as ESG leaders, outpacing competitors who are slower to comply or struggle to meet the standards.

Preparing for CSRD Compliance

For businesses affected by the CSRD, early preparation will be crucial for smooth compliance. Here are some steps to consider:

  • Conduct a Gap Analysis: Assess your current sustainability reporting practices and identify what additional data or systems will be needed to meet CSRD requirements.
  • Engage Key Stakeholders: Ensure internal stakeholders, from finance teams to sustainability officers, are aligned and aware of their roles in the reporting process.
  • Invest in ESG Reporting Tools: As the CSRD mandates more detailed and frequent reporting, businesses may benefit from adopting ESG-specific software to streamline data collection and analysis.
  • Prepare for Assurance: Work closely with third-party auditors to understand the assurance process and ensure that your data is accurate and verifiable.
  • Monitor Regulatory Updates: The CSRD is part of a broader EU sustainability push. Stay informed on related regulations, such as the EU Taxonomy and the SFDR, to ensure comprehensive compliance.

Conclusion

The CSRD represents a major shift in corporate sustainability reporting, pushing for greater transparency and accountability from businesses across Europe and beyond. While the increased scope and depth of the directive present challenges, they also offer companies the opportunity to improve their ESG performance, manage risks better, and strengthen relationships with investors and stakeholders.

If your company falls within the CSRD’s scope, now is the time to start preparing. By embracing these changes early, businesses can not only ensure compliance but also use the directive as a tool for long-term sustainability and success.

Understanding the CSRD and preparing for its requirements is crucial for navigating this new era of sustainability reporting. How will your business adapt? Let us know in the comments!

For further reading, you may want to explore the EU Green Deal and the Sustainable Finance Disclosure Regulation (SFDR).