In recent years, the corporate world has witnessed a significant shift towards sustainability and responsible business practices. One of the key initiatives driving this change is the Corporate Sustainability Reporting Directive, or CSRD for short. In this article, we will delve deep into the world of CSRD, exploring what it stands for, when it comes into effect, its requirements and its significance for sustainability reporting going forward.
What is the CSRD?
CSRD, which stands for the Corporate Sustainability Reporting Directive, is a European Union directive which represents a pivotal step in its commitment to enhancing corporate transparency and accountability around sustainability.
The proposed CSRD reporting requirements go well beyond those of the existing Non-Financial Reporting Directive (NFRD) and as such, CSRD will place Europe as a global frontrunner on ESG reporting.
The CSRD aims to standardise sustainability reporting across EU member states, to make sure that companies provide consistent and comparable information regarding their environmental, social, and governance (ESG) performance.
CSRD is a significant component of the EU's wider sustainability agenda. It aligns with the European Green Deal and the EU Taxonomy regulation, which define the criteria for environmentally sustainable economic activities. CSRD reporting requirements also extend beyond the EU's borders, as it is expected to influence global standards for sustainability reporting.
CSRD Reporting Requirements
To comply with the new framework, companies will need to report on how sustainability issues (like climate change) financially impact their business, as well as on the social and environmental impact of their own operations and supply chain – this is what’s referred to as ‘double materiality’.
The CSRD introduces several significant changes and reporting requirements for companies operating within the European Union. Here are some key provisions of CSRD:
Mandatory Reporting: Under the CSRD, reporting on ESG matters becomes mandatory. This means that as part of their annual management reports, companies must disclose comprehensive information on environmental, social, and governance aspects of their operations. These areas will include:
Environmental factors including climate change mitigation and adaptation, water resources, pollution, biodiversity and ecosystems
Social and human rights factors including equal treatment and opportunities, disability inclusion, diversity, working conditions and respect for the principles and standards established in core UN human rights conventions
Governance factors including business ethics and corporate culture, anti-corruption and anti-bribery practices and lobbying activities
Harmonised Reporting Standards: CSRD introduces a standardised reporting format, including common indicators and metrics. The reasoning is that this will make it easier for stakeholders to compare and assess ESG performance across different companies.
Assurance Requirement: Companies will need to obtain assurance on their sustainability reports from independent auditors to enhance the credibility and reliability of the disclosed information.
Digital Reporting: CSRD promotes the use of digital reporting formats, making it easier for investors, regulators, and the public to access and analyse sustainability data.
CSRD Timeline: When does the directive come into effect?
The CSRD timeline is designed in a phased approach, with the first reporting year under CSRD provisions expected to start in 2024.
1st January 2024: Listed companies with 500+ employees (already reporting in line with NFRD) will be required to report in 2025 on their 2024 data.
1st January 2025: Large non-listed companies (not currently reporting in line with NFRD) will be required to report in 2026 on 2025 data.
1st January 2026: Listed SMEs will be required to report in 2027 on 2026 data.
1st January 2028: All Iisted international and non-EU companies with more than €150M annual revenue in the EU – and which have at least one subsidiary/branch in the EU – will be required to report in 2029 on 2028 data
Which businesses need to comply with EU CSRD?
CSRD reporting requirements apply to a broader range of companies than today’s NFRD, including all large and medium-sized undertakings, listed companies, and large non-listed companies. Almost 50,000 companies are expected to be impacted by CSRD, making up some three quarters of business in the European Economic Area.
CSRD will apply to:
Companies listed on regulated markets in the EU (apart from listed micro-enterprises)
Large companies (defined as meeting two of the following three criteria)
More than 250 employees
A turnover of over €40 million
Over €20m total assets
Listed SMEs (NB: there will be a transitional period when SMEs can opt out until 2028)
In time, EU CSRD will also apply to all Iisted international and non-EU companies with more than €150M annual revenue in the EU – and which have at least one subsidiary/branch in the EU.
EU Corporate Sustainability Reporting Directive (CSRD): an opportunity for growth
The Corporate Sustainability Reporting Directive is a game-changing initiative within the European Union which stands to enhance corporate sustainability reporting and accountability throughout the world.
But complying with CSRD reporting requirements will demand significant resources. How can businesses make sure that they are driving the greatest possible value from that time-investment?
Nowadays, regulators aren’t the only stakeholders looking for data-backed information about your sustainability progress. When it comes to consumer goods, today’s customers increasingly expect to know the impact of the products they buy. CSRD-compliant businesses that neglect the ‘last mile’ – ie. communicating their sustainability data to their customers – are missing a monumental opportunity.
Partnering with Provenance enables businesses to solve this very problem – translating dense and complex ESG data into customer-friendly sustainability marketing touchpoints throughout the customer journey. Those that do so can turn a time-intensive compliance exercise into a powerful commercial advantage.
Click here to speak with our team about how you can generate brand value from your sustainability data.