Corporate Sustainability Reporting Directive
The European Union’s sustainability reporting framework
Corporate Sustainability Reporting Directive (CSRD)
The CSRD requires more European companies to comply with standards that will improve the reliability and comparability of companies’ ESG impact. Based on the existing sustainability reporting standards, the European Financial Reporting Advisory Group (EFRAG) compiles these standards.
The main objective of the CSRD is to mitigate the shortcomings of the NFRD. The European Commission enlarged the scope to include approximately 49,000 companies that match 2 out of 3 of the below characteristics:
- > 250 employees and/or,
- > €40-million turnover and/or,
- > €20-million total assets listed companies
These characteristics cover >75% of the total EU companies’ turnover. These companies will be required to comply with the CSRD by 2024 (Fiscal Year 2023). It is worth noting that small and medium listed companies that do not match the above criteria get an extra three years to comply.
Regarding reporting requirements of the CSRD, those brought forward by the NFRD will be amended. In addition to the NFRD, the following topics are introduced:
- Double Materiality Concept – reporting on both the impact the company has on society and the environment and the sustainability risks the company experiences (e.g., due to climate change and scarcity of resources)
- Formulating long-term Environmental, Social, and Governance (ESG) objectives and policies
- Due diligence on its operation and supply chain
- Disclosure of information relating to intangibles (social, human, and intellectual capital)
- Reporting in line with the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation
- Integrated reporting and mandatory external assurance
In addition, it will be required to format and publish sustainability reports using the European Single Electronic Format (ESEF/XHTML), data tags, and advanced databases.
When do you need to be CSRD compliant?
It was planned to be effective from 2024, reporting on Fiscal Year 2023. However, the European Council proposed delaying it to start in 2025, with different phases for specific companies.
- Phase 1: 2025, report on FY2024 – Companies already complying with NFRD
- Phase 2: 2026, report on FY2025 – Large companies that did not yet comply with NFRD
- Phase 3: 2027, report on FY2026 – Listed Small to Medium-sized Entreprises (SMEs) & small banks and insurance companies
In addition, a new deadline for reasonable assurance is requested to only be effective from 6 years after their starting point in complying with CSRD. E.g., when you start in 2026, the reasonable assurance would begin in 2032. We illustrate this timeline in the below figure:
