The Corporate Sustainability Reporting Directive (CSRD) is an EU initiative aimed at enhancing the quality and scope of sustainability reporting by companies. It builds on the Non-Financial Reporting Directive (NFRD) by extending reporting requirements to all large companies and listed SMEs, and introduces standardized reporting based on European Sustainability Reporting Standards (ESRS). The CSRD seeks to improve corporate accountability, provide reliable sustainability data, and support the EU’s sustainability goals, with phased implementation starting in 2024.
Objectives of the CSRD
The Corporate Sustainability Reporting Directive (CSRD) is strategically designed to meet several critical objectives, which are pivotal to advancing the European Union’s sustainability agenda :
The CSRD aims to enhance transparency in sustainability reporting by providing stakeholders with consistent and reliable ESG information, enabling informed decisions and corporate accountability. It improves the comparability of data across companies by introducing standardized European Sustainability Reporting Standards (ESRS), addressing previous inconsistencies under the NFRD. Additionally, the CSRD strengthens corporate accountability by expanding reporting requirements and imposing stricter disclosures, driving responsible business practices and supporting the EU’s sustainability goals.
Scope and Applicability
| Category | Criteria/Conditions | Obligation |
| EU Companies | – Large public-interest entities (e.g., listed companies, banks, insurance firms) | Must comply with CSRD if they meet at least two of the following: – Over 250 employees – €40 million in revenue – €20 million in assets. |
| – Listed SMEs and large non-listed companies | Must comply with CSRD | |
| – Non-listed SMEs | Can choose to comply voluntarily. | |
| Non-EU Companies | – Non-EU companies with over €150 million in net turnover within the EU and at least one EU subsidiary or branch. | Must comply with CSRD. |
Exemptions and Special Cases
Listed SMEs have a transitional period with reduced reporting requirements to ease their adaptation to the new standards. Certain companies, such as micro-enterprises, and sectors with existing regulations may be exempt from full compliance to avoid duplication.
Key Reporting Requirements
Environmental Reporting Overview :
Climate Change: Disclosures on climate risks, greenhouse gas (GHG) emissions (Scope 1, 2, 3), and strategies for mitigating climate impacts.
Pollution: Reporting on air, water, and soil pollution, including measures to reduce pollutants and manage hazardous substances.
Water and Marine Resources: Information on water usage, conservation, impact on marine ecosystems, and strategies for sustainable water management.
Biodiversity: Assessment of the company’s impact on biodiversity and ecosystems, including efforts to protect natural habitats and species.
Circular Economy: Details on waste management, recycling practices, and product lifecycle management to promote resource efficiency and reduce environmental impact.
Social and Governance Reporting Overview :
Own Workforce : Information on employee well-being, working conditions, diversity and inclusion, training and development, and health and safety measures.
Workers in the Value Chain : Reporting on labor practices, fair wages, working conditions, and human rights protection for workers across the supply chain.
Consumers and End Users : Disclosures on product safety, quality, consumer rights, and data protection, as well as the environmental and social impact of products and services.
Affected Communities : Assessment of the company’s impact on local communities, including social investment, community engagement, and efforts to mitigate negative impacts.
Business Conduct : Information on ethical business practices, anti-corruption measures, transparency, and compliance with laws and regulations.
Mandatory Use of EU Standards
European Sustainability Reporting Standards (ESRS) Overview :
The ESRS offers a detailed framework for EU sustainability reporting on ESG factors, including :
● Detailed Disclosures : Report on impacts, risks, and opportunities.
● Sector-Specific Information : Tailored to different industries.This is currently in progress and has not yet been published.
● Materiality Assessment : Focus on relevant sustainability topics.
● Governance and Strategy : Disclose governance structures and strategies.
● Global Standards : Aligns with GRI and complements SASB standards for consistency.
Alignment with International Standards :
The ESRS align with major global frameworks for consistency and comparability:
● GRI : Complements GRI by covering comprehensive ESG impacts and stakeholder inclusiveness.
● ISSB : The ESRS aligns with the ISSB standards, enhancing global consistency and comparability
This alignment ensures standardized reporting, enhances cross-border comparability, and provides clear, comparable information for investors and stakeholders.
Digital Reporting Requirement
1. European Single Electronic Format (ESEF):
○ Digital Tagging: Financial statements must use XBRL tags for consistency and comparability.
○ Inline XBRL (iXBRL): Reports should be prepared in iXBRL format, combining human-readable and machine-readable elements.
2. Sustainability Information Integration:
○ Guidelines: Integrate sustainability disclosures within financial reports using ESEF tags to align with ESRS requirements.
○ Disclosure: Ensure relevant sustainability metrics are included alongside financial data.
Timeline and Deadlines
EU Corporate Sustainability Reporting Timeline
2024 :
● Initial Reporting Obligations Begin: Large public-interest entities (PIEs) are required to start complying with the new corporate sustainability reporting requirements. These entities typically include listed companies, banks, and insurance companies with a significant public interest.
2025 :
● Expanded Reporting Obligations: The scope of the reporting requirements will be extended to include additional companies. This expansion will generally cover large companies that are not classified as PIEs but meet certain size criteria, as well as potentially medium-sized entities, depending on their sector and impact.
Key Aspects of the Reporting Requirements :
● Directive: These obligations are part of the EU Corporate Sustainability Reporting Directive (CSRD), which aims to enhance the transparency and quality of sustainability reporting.
● Standards: Companies will need to adhere to the European Sustainability Reporting Standards (ESRS), which provide detailed guidelines on how to report on environmental, social, and governance (ESG) matters.
● Digital Reporting: There will be a requirement for digital reporting using the European Single Electronic Format (ESEF), which facilitates easier access and comparison of sustainability information.
Preparation Timelines and Steps for Compliance
1. Initial Assessment and Gap Analysis
○ Timeline: 3-6 months before reporting starts
○ Actions: Evaluate current practices, identify gaps, and align with new standards.
2. Adoption of Reporting Frameworks and Standards
○ Timeline: 3-6 months after initial assessment
○ Actions: Integrate EU Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS) into reporting practices.
3. Development of Internal Processes and Systems
○ Timeline: 6-12 months before reporting starts
○ Actions: Set up systems for data collection, train staff, and establish internal controls for accurate reporting.
Challenges and Considerations
Common Challenges in Compliance
1. Data Collection and Management
○ Challenge : Gathering accurate sustainability data.
○ Solution : Use robust systems and clear departmental communication.
2. Integration into Existing Systems
○ Challenge : Merging sustainability with financial reporting.
○ Solution : Align data frameworks and upgrade systems if needed.
3. Ensuring Accuracy and Completeness
○ Challenge : Ensuring reliable, complete disclosures.
○ Solution : Implement strict controls, regular audits, and staff training.
Best Practices for Compliance
1. Data Management Strategies
○ Approach : Establish clear processes for data collection, validation, and reporting to ensure accuracy and reliability.
2. Use of Technology
○ Approach : Leverage advanced software and tools to streamline sustainability reporting and ensure compliance.
3. Stakeholder Communication
○ Approach : Maintain transparent and regular communication with stakeholders about sustainability performance through clear reports and updates.
The Role of Auditors and Assurance Providers
Auditing Requirements
1. Role of External Auditors
○ Requirements : Sustainability reports must be audited by external auditors to ensure accuracy and compliance with reporting standards.
○ Standards : Auditors follow specific methodologies and standards, such as ISAE 3000, to provide assurance on sustainability disclosures.
2. Audit Processes
○ Overview : The audit process typically includes data verification, evaluation of reporting practices, and issuing an assurance statement. Auditors review the completeness and reliability of the information provided.
3. Choosing Assurance Providers
○ Factors to Consider : Select auditors based on expertise in sustainability reporting, reputation, and familiarity with the relevant standards.
○ Recommendations : Ensure the chosen auditor or assurance provider has a track record of quality and reliability to maintain high standards in reporting.
Future Trends and Developments
Evolving Regulatory Landscape
1. Upcoming Changes : Expect updates to the CSRD, expanding reporting requirements.
2. Global Trends : Sustainability reporting is standardizing globally, emphasizing transparency and accountability.
3. Impact on Corporate Strategy : Compliance can boost strategy, reputation, and sustainability goals. Integrate sustainability into corporate governance to meet regulations and market expectations.
In summary, compliance with the Corporate Sustainability Reporting Directive (CSRD) is vital for achieving transparency and long-term success. Key aspects include effective data management, integration with existing systems, and ensuring accurate reporting through external audits. Companies should begin preparations now by assessing current practices, adopting relevant standards, and integrating sustainability into their corporate strategy.
● Resources – European Commission’s CSRD page
