The Corporate Sustainability Reporting Directive (CSRD) is a new regulation introduced by the European Union to enhance and standardise sustainability reporting across Europe. It is designed to improve the transparency and reliability of sustainability information provided by companies, thereby enabling stakeholders to better assess and compare the environmental and social impacts of businesses.
Key Points of the CSRD
Scope and Applicability:
The CSRD significantly expands the scope of companies required to report on sustainability issues. It applies to all large companies and all companies listed on regulated markets, except for listed micro-enterprises.
This includes approximately 50,000 companies across the EU, compared to the 11,000 companies covered under the previous Non-Financial Reporting Directive (NFRD).
Content Requirements:
Companies must report on a broad range of sustainability matters, including environmental, social, and governance (ESG) issues.
Reports must include information on how sustainability matters affect the company (outside-in perspective) and how the company impacts the environment and society (inside-out perspective).
Reporting Standards:
The CSRD mandates the use of European Sustainability Reporting Standards (ESRS), which are being developed by the European Financial Reporting Advisory Group (EFRAG).
These standards will ensure consistency and comparability of the reported information.
Assurance and Audit:
Companies are required to obtain assurance for their sustainability information. This means that an independent third party will need to verify the reported data, enhancing its credibility.
Initially, a limited assurance requirement will be implemented, but this is expected to move to a reasonable assurance level over time.
Digital Reporting:
The CSRD requires companies to prepare their sustainability reports in a digital, machine-readable format to facilitate accessibility and analysis by stakeholders and regulators.
Timeline:
The CSRD was adopted by the European Parliament and the Council in 2021, with implementation phases starting from the financial year 2024.
Large public-interest entities already subject to the NFRD will need to comply with the new requirements for reports published in 2025 for the financial year 2024.
Other large companies and listed SMEs will follow in subsequent years.
Objectives of the CSRD
- Improve Transparency: Enhance the quality and comparability of sustainability information disclosed by companies.
- Promote Sustainable Investment: Provide investors and other stakeholders with reliable information to make informed decisions about sustainability and long-term value creation.
- Enhance Accountability: Hold companies accountable for their impacts on the environment and society.
- Support the EU Green Deal: Align corporate reporting with the EU’s broader sustainability goals and the transition to a more sustainable economy.
Benefits of the CSRD
- For Companies: The directive provides a clear framework for sustainability reporting, helping companies to better manage their ESG risks and opportunities.
- For Investors: Standardised and reliable data enables investors to assess the sustainability performance of companies more effectively.
- For Society: Improved transparency on corporate sustainability practices supports broader societal goals, such as reducing carbon emissions and promoting social equity.
The CSRD represents a significant step forward in corporate sustainability reporting, ensuring that companies provide high-quality and comparable ESG information to support a sustainable economy.
