Corporate Sustainability Reporting Directive (CSRD)

Corporate Sustainability Reporting Directive (CSRD)

CSRD definition

The Corporate Sustainability Reporting Directive (CSRD) is a new company reporting requirement designed to enhance the quality, consistency, and comparability of sustainability reporting by companies operating in the European Union (EU). It was proposed by the European Commission in 2021 to replace the Non-Financial Reporting Directive (NFRD). The CSRD is expected to apply from fiscal years beginning on or after 1 January 2024.

The CSRD makes carbon data a crucial reporting element. From 2024 onwards, more businesses will be required to report more comprehensive and detailed information on sustainability. The main objectives are to improve the relevance and reliability of sustainability information, provide a comprehensive view of a company's sustainability performance, and foster sustainable investment and decision-making. It is stricter in guidance and broader in scope than the NFRD, applying to four times as many companies across the EU.

CSRD scope

The CSRD expands reporting requirements to cover more companies, including large and listed small and medium-sized enterprises (SMEs), as well as all publicly traded companies, credit institutions, and insurance undertakings. Companies that fulfil at least two of the following three conditions will have to comply with CSRD:

It is not only EU-based companies that need to pay attention to this change. The CSRD applies to any company with at least one large or listed EU subsidiary, or at least one branch with a net turnover of €40 million in the EU, that has also generated a net turnover of more than €150 million on the European market in the last two consecutive financial years. The EU subsidiary or branch is responsible for CSRD-compliant reporting.

CSRD timeline

The CSRD was adopted by the European Parliament in November 2022 and came into force in January 2023. The 12 European Sustainability Reporting Standards (ESRS) were adopted in July 2023. A second set of reporting standards, which are sector-specific and adapted to different company forms, is to follow by 30 June 2024.

The regulations will come into effect in four stages:

  • On 1 January 2024 for companies already subject to the NFRD.
  • On 1 January 2025 for large companies not currently subject to the NFRD
  • On 1 January 2026 for listed SMEs and for small and non-complex credit institutions and captive insurance companies. 
  • On 1 January 2028 for non-EU companies falling under the CSRD reporting obligation.

The Commission will review the standards every three years to take into account new developments such as international standards.

CSRD requirements

Under the CSRD, climate action and transparent reporting on corresponding measures will become mandatory for companies. This gives sustainability strategy the same prominence as financial reporting.

The CSRD introduces a broad set of sustainability topics that companies need to report on. This includes environmental, social, and governance (ESG) factors, such as climate change, biodiversity, human rights, and anti-corruption measures. It emphasises forward-looking information to assess companies' long-term sustainability strategies. 

CSRD meaning

The new directive will advance climate action, promote trust, and create a positive incentive for all companies to take responsibility. As one of several legislative initiatives, the CSRD provides both more clarity and more recognition of companies' commitment to climate action.

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