In 2024, organizations across the globe will face new regulatory reporting requirements to increase the transparency of ESG (environmental, social, and governance) impact and progress. CSRD (EU 2022/2464) entered into force in January 2023, replacing the Non-Financial Reporting Directive (NFRD).
For organizations either based in the EU or which have subsidiaries within the region, this path is crucial now. CSRD aims to increase authenticity in ESG reports and bring transparency to sustainability information published.
What is the Corporate Sustainability Reporting Directive (CSRD)?
CSRD stands for Corporate Sustainability Reporting Directive, approved by the European Commission, which replaces the EU’s NFRD and will mandate organizations to follow detailed ESG reporting measures. While the measure was adopted in the EU, it is not just EU-based companies that will be affected. As per recent estimates, at least 10,000 companies outside the EU must adhere to the CSRD rules; roughly 33% are estimated to be in the United States, 13% are Canadian, and 11% are British.
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Which companies must comply with CSRD?
Companies already included under the NFRD, large organizations, and special interest firms will be impacted first, with the FY 2024 reports by 2025.
Between 2026 and 2029, all large and listed European companies must also comply.
All listed companies + large companies which meet 2/3 of the below requirements fall under the scope:
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Balance sheet total: > €20 million ($21 million)
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Net revenue: > €40 million ($42 million)
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> 250 average number of employees during the FY
What is the Corporate Sustainability Reporting Directive (CSRD) Timeline?
The timeline for reporting and enforcement is divided into the following phases.
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FY 2024 for companies already subjected to the NFRD (reports to be published in 2025).
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FY 2025 for other non-listed, large companies above the thresholds (>250 employees, turnover of at least €40 million ($42 million) or a balance sheet total of at least €20 million ($21 million)) that are not presently subject to the NFRD (reports to be published in 2026).
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FY 2026 for listed small and medium-sized enterprises (SMEs).
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FY 2028 for non-European companies. This applies to all companies listed in the EU that have a net turnover of €150 million (roughly $163 million) in the EU and have at least one subsidiary in the European Union.
What kind of ESG data does the CSRD require companies to report?
The reports must follow the European Sustainability Reporting Standards (ESRS), drafted and adopted by the EU under the European Financial Reporting Advisory Group (EFRAG).
Highlights of the Corporate Sustainability Reporting Directive (CSRD)
1. Applicability
The Corporate Sustainability Reporting Directive (CSRD) extends reporting obligations to a broader range of companies, including large and listed companies and introduces requirements for small and medium-sized enterprises (SMEs) that meet certain thresholds.
2. Reporting Elements
The Corporate Sustainability Reporting Directive (CSRD) introduces a set of mandatory reporting elements that companies are required to disclose in their annual sustainability reports, which include information related to environmental performance, social aspects (such as employee matters and human rights), governance practices, and business models. These are to be published in a specific section of the Management Report or a separate Sustainability Report for consideration.
3. Reporting format
The Corporate Sustainability Reporting Directive (CSRD) emphasizes the use of digital and structured reporting formats, which enable standardized and machine-readable reporting.
4. Assurance:
To improve the reliability of the information, the Corporate Sustainability Reporting Directive (CSRD) introduces requirements for external assurance or verification of sustainability reports by qualified auditors or assurance providers. Limited assurance and this will move towards reasonable assurance after six years after the adoption of CSRD.
5. Oversight of competent authorities and Enforcement
The Corporate Sustainability Reporting Directive (CSRD) emphasizes public oversight and the role of national competent authorities in ensuring compliance with reporting obligations.
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6. Interrelationship with International Standards
The Corporate Sustainability Reporting Directive (CSRD) seeks to align with international sustainability reporting standards and frameworks, such as those developed by the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).
7. Timeline:
The CSRD is proposed to be implemented in phases, with larger companies required to comply first, and this would vary based on the size and nature of the companies.
8. Benefits
The CSRD is expected to enhance transparency, comparability, and reliability of sustainability information provided by companies to benefit stakeholders, including investors, consumers, employees, and regulators, and contribute to a more sustainable and resilient economy.
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