The Ultimate Guide to CSRD Compliance

The Corporate Sustainability Reporting Directive (CSRD) is an EU legislation that significantly expands and standardizes sustainability reporting requirements for companies. It replaces the Non-Financial Reporting Directive (NFRD) with more detailed and stringent rules.

The primary aims of CSRD are to ensure that companies publicly disclose adequate information about the sustainability risks and opportunities they face, and the impacts they have on people and the environment. This enhances transparency and helps investors, civil society, consumers, and other stakeholders evaluate the sustainability performance of companies.

CSRD will apply to a much larger set of companies compared to NFRD, estimated to be around 50,000 companies. The application is phased:

• Large EU "public interest entities" already subject to NFRD (e.g., listed companies, banks, insurance companies with >500 employees).
• All other large EU companies meeting at least two of the following:
  • More than 250 employees
  • Net turnover of more than €50 million
  • Balance sheet total of more than €25 million
• Listed EU SMEs (small and medium-sized enterprises), with an opt-out possible during a transitional period.
• Non-EU parent companies with significant activity in the EU (net turnover > €150 million in the EU) and at least one large or listed EU subsidiary, or an EU branch with net turnover > €40 million.

Companies under CSRD must report according to mandatory European Sustainability Reporting Standards (ESRS). Key aspects include:

• Double Materiality Assessment: Companies must report on both how sustainability issues affect their business (financial materiality) and how their business impacts society and the environment (impact materiality).
• European Sustainability Reporting Standards (ESRS): Developed by EFRAG (European Financial Reporting Advisory Group), these standards cover a wide range of ESG topics, including environmental (climate change, biodiversity, circular economy), social (workforce, communities, consumers), and governance factors (business conduct).
• Comprehensive ESG Information: Reporting must cover strategy, targets, the role of administrative, management and supervisory bodies, principal adverse impacts, and intangible assets.
• Digital Tagging (XHTML/iXBRL): Sustainability information must be digitally tagged in XHTML format, making it machine-readable and facilitating its inclusion in the European Single Access Point (ESAP).
• Assurance of Sustainability Information: Reported sustainability information will require external assurance, starting with limited assurance and potentially moving to reasonable assurance in the future.

The CSRD requirements will be phased in as follows:

• FY 2024 (reporting in 2025): For large public-interest entities with over 500 employees already subject to the NFRD.
• FY 2025 (reporting in 2026): For other large companies not currently subject to the NFRD (meeting two of the three criteria: >250 employees, >€50M turnover, or >€25M total assets).
• FY 2026 (reporting in 2027): For listed SMEs (except micro-undertakings), small and non-complex credit institutions, and captive insurance undertakings. SMEs can opt-out until FY 2028.
• FY 2028 (reporting in 2029): For third-country undertakings with net turnover above €150 million in the EU if they have at least one subsidiary (large or listed) or branch (net turnover > €40M) in the EU.

Embracing CSRD proactively offers significant advantages:

• Enhanced Transparency & Comparability: Standardized reporting allows stakeholders to better compare sustainability performance.
• Improved Investor Confidence: Robust ESG data meets growing investor demand and can attract capital.
• Better Risk Management: Identifying and managing sustainability risks becomes integral to business strategy.
• Strengthened Stakeholder Relations: Demonstrates commitment to sustainability, improving relations with customers, employees, and communities.
• Innovation & Competitive Advantage: Drives businesses to innovate in sustainable practices, potentially leading to cost savings and new market opportunities.
• Alignment with EU Green Deal: Contributes to the EU's broader sustainability objectives and transition to a climate-neutral economy.