The Corporate Sustainability Reporting Directive (CSRD) establishes a uniform framework for the reporting of non-financial data for companies operating in the European Union. After its adoption in November 2022 by the European Parliament, the CSRD entered into force on January 5, 2023.
In order to move the business world toward a more sustainable future, the directive aims to assist investors, civil society groups, consumers, policymakers, and other stakeholders in taking into account the non-financial performance of large businesses. The CSRD replaces Directive 2014/95/EU, generally known as the Non-Financial Reporting Directive (NFRD), to encourage more accurate disclosure of sustainability targets and metrics. One of the key provisions of the CSRD is compliance with the European Sustainability Reporting Standards (ESRS).
Who does the Corporate Sustainability Reporting Directive apply to?
The CSRD will significantly expand the scope of companies subject to mandatory reporting. With the extension of the reporting obligation, the number of companies obliged to report is expected to rise from 11,600 to 50,000 across the EU, 15,000 of them in Germany alone.
All companies listed on an EU-regulated market are covered by the new reporting obligation.
All non-capital market-oriented companies are subject to the CSRD if they meet two of the following three criteria: (a) More than 250 employees and/or (b) net sales of more than 40M EUR and/or (c) Balance sheet total of more than 20M EUR
Capital market-listed SMEs, small and non-complex credit institutions, and group-owned insurance companies; microenterprises are excluded from the scope of the application.
Non-EU companies are obliged to submit a sustainability report if a net turnover of €150 million is achieved in the EU and have at least one subsidiary or branch in the EU.
Companies also have the possibility of reporting voluntarily. Simplified reporting standards are currently being developed for SMEs.
When do companies need to report?
The reporting requirements will come into effect over a period of four years, starting in 2024. The report itself should be published no later than four months after the end of the indicated financial year.
2025 (covering financial year 2024) Large companies that are currently in scope of the Non-Financial Reporting Directive (NFRD), meaning companies of public interest with more than 500 employees
2026 (covering financial year 2025) All large companies (see definition above) that are not currently covered by the Non-Financial Reporting Directive (NFRD)
2027 (covering financial year 2026) Capital market-listed SMEs (with opt-out option until 2028), small and non-complex credit institutions, and group-owned insurance companies
2028 (covering financial year 2027) All companies covered by the CSRD, including Non-EU companies with EU branches or subsidiaries
What are the new reporting requirements under the CSRD?
Under the CSRD, companies are obliged to extend their management report with a non-financial statement. The report should be structured based on the guidelines from the ESRS, which are being developed by the European Financial Reporting Advisory Group (EFRAG).
Reporting requirements of the CSRD
In the report, companies are required to disclose existing elements outlined by the NFRD, including:
Social responsibility and treatment of employees
Respect for human rights
Anti-corruption and bribery and
Diversity on company boards
In addition, new elements are required to report, including:
Process of selecting material topics for stakeholders
Targets and progress of sustainability initiatives, including alignment of the business model and strategy with the EU goal to achieve climate neutrality by 2050
Most significant negative impacts regarding ESG, including the degree of exposure to coal, oil, and gas-related activities
Role of the administrative, management, and governance bodies
Information relating to intangibles (e.g., social, human, and intellectual capital)
Information about the company's value chain, including the company's own operations, product and service portfolio, business relationships and supply chain
Description of the corporate policies with regard to sustainability issues
Description of the company's most material risks related to sustainability issues
Further innovations introduced by the CSRD
The concept of double materiality is anchored in the CSRD. Double materiality means that companies must report not only on the impact of environmental changes on their business but also on the impact of their operations on the environment (including social and governance issues). Learn more about the concept of double materiality in our insights article.
The CSRD introduces an extended and more standardized reporting obligation (through ESRS). In order to increase the informative value and comparability of reports, more uniform benchmarks must be applied, and reporting content must be quantified to a greater extent.
Companies must report on CSRD requirements exclusively in the management report. Previously, under the NFRD, it was also possible to report separately (e.g., on the website)
Companies must apply a digital ‘tag’ to the reported information so it is machine-readable and feeds into the European single access point envisaged in the capital markets union action plan.
An independent auditor or certifier must ensure that the sustainability information complies with the standards adopted by the EU, with limited audit assurance (it is likely that the requirements for reasonable assurance will come).
Other relevant and recognized standards are expected to be used to report: PCAF & GHG Protocol for metrics and measurement, SBTi for defining objectives, and PACTA for climate scenario analysis.
Collecting, monitoring, and reporting sustainability data in accordance with the CSRD and ESRS can be time-consuming and challenging. Envoria helps you set up an individual reporting process and efficiently manage and report all required data. Request a free demo to learn how your organization can become compliant with the CSRD.