What is the Corporate Sustainability Reporting Directive (CSRD)?
- To help improve the flow of money towards sustainable activities across the European Union, the European Commission adopted the ambitious and comprehensive Sustainable Finance Package on April 21, 2021. One of the proposed measures within the package is the Corporate Sustainability Reporting Directive (CSRD).
- The Corporate Sustainability Reporting Directive (CSRD) has been officially adopted by the European Union Council and entered into force on January 5, 2023.
- The CSRD extends the scope and the reporting requirements of the existing Non-Financial Reporting Directive. This regulatory framework mandates sizeable public interest entities report on their sustainability performance since 2018.
- With its new requirements, the CSRD aims to ensure that businesses report reliable and comparable sustainability information so that investors can re-orient investments towards more sustainable technologies and industries.
Which companies have to comply with the CSRD?
- The CSRD expands the sustainability reporting requirement to a broader range of companies compared to the previous Non-Financial Reporting Directive (NFRD).
- Whereas the NFRD only applied to companies with more than 500 employees, the CSRD extends to large companies defined as those with over 250 employees and/or €40M turnover and/or €20M in total assets.
- All listed companies (with the exception of micro-enterprises) are now required to report their sustainability performance under the CSRD.
- The enforcement of the CSRD means that around 50,000 companies across the EU, which account for 75% of all EU companies' turnover, will be required to adhere to detailed EU sustainability reporting standards.
- Non-European companies that have branches or subsidiaries in the EU, and have a net turnover of €150M or more within the EU, will also be required to comply with the CSRD, but this requirement will be enforced at a later date.
Detailed disclosures under the Corporate Sustainability Reporting Directive (CSRD)
The CSRD doesn't only widen the range of businesses required to report on their sustainability—it also heightens the level of disclosure required. In addition to those stipulated by the NFRD, companies must provide detailed reports on:
- Environmental protection measures: Businesses will have to disclose their specific initiatives to reduce their environmental footprint, including resource conservation and pollution prevention strategies.
- Social responsibility and treatment of employees: This includes everything from employee health and safety protocols to employee benefits and company culture.
- Respect for human rights: Companies must discuss their policies on human rights and how they ensure these rights are not violated within their operations.
- Anti-corruption and bribery measures: Businesses must explain their strategies to prevent corruption and bribery, including corporate governance measures and ethics training programs.
- Diversity on company boards: The CSRD requires companies to provide a detailed breakdown of the diversity of their board members, focusing on aspects such as gender, age, and nationality.
Businesses will also have to start reporting how sustainability risks might affect their performance.
- While the EU provides voluntary reporting guidelines for NFRD reports, the CSRD introduces more detailed reporting requirements and a requirement to report according to EU sustainability reporting standards.
- The CSRD reporting will align with the Sustainable Finance Disclosure Regulation and the EU Taxonomy.
Timeline of implementation for the CSRD
With the final approval from the European Union Council on 28 November 2022, the CSRD officially entered into force on 5 January 2023. The phased implementation of the directive will occur as follows:
- End of 2023: EU Member States will have to adopt the EU Directive into national law.
- January 1, 2024: Companies within the scope of CSRD and currently reporting under the NFRD will be obliged to report their FY 2024 data in 2025. As of the beginning of 2024, all other large EU companies within the scope of CSRD are obliged to report.
- January 1, 2025 : Businesses already subject to the NFRD will have to start reporting in the financial year 2024.
- January 1, 2026: SMEs listed on a regulated market (no micro-enterprises) obliged to report for FY 2025 (but under less stringent reporting requirements).
- January 1, 2028: Small and medium enterprises and small and non-complex credit institutions, and captive insurance undertakings will have to start reporting for the financial year 2027 - with a further possibility of voluntary opt-out until 2028. The reporting standards for SMEs will be lighter.
- January 1, 2029: Non-European companies that have branches or subsidiaries in the EU with a net turnover of €150M in the EU will have to start reporting.
Preparing your business for the Corporate Sustainability Reporting Directive (CSRD)
The implications of the CSRD for businesses are immense, affecting everything from operations to strategic planning. Given the short timeline, it's crucial for companies to start preparing for this new directive. By starting the data collection process early, businesses can ensure they are ready to meet these new requirements when the time comes.
Given the comprehensive nature of the CSRD, businesses should consider seeking guidance from policy experts. These experts can provide valuable insights into what the CSRD means for your business and can help you develop an effective strategy for compliance.
Get a head start on your corporate sustainability journey by aligning your company with the CSRD and taking proactive measures to report on climate risk and sustainability. Don't hesitate to reach out to our policy experts to learn more about solutions adapted to your sustainability reporting needs.