On November 10th, the EU Parliament adopted the Corporate Sustainability Reporting Directive (CSRD) proposed by the European Commission (EC) in April 2021. It is expected to be adopted by the Council of the European Union next week and enter into force the beginning of next year at the latest.

The CSRD will ensure alignment with other EU initiatives on sustainable finance, in particular the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation. The aim is to reduce complexity and the potential for duplicative reporting requirements-- it will include indicators that correspond to the indicators contained in the SFDR-- end greenwashing, strengthen the EU’s social market economy and lay the groundwork for sustainability reporting standards at global level.

The expanded scope of the directive means that almost 50,000 companies will now need to comply, as opposed to about 12,000 under the existing Non-Financial Reporting Directive (NFRD).

Does it apply to your organization and what does this mean for you? Read on to find out.

MANDATORY

WHAT: An ESG reporting standard. The CSRD is EU legislation requiring all large companies to publish regular reports on their environmental and social impact activities. It helps investors, consumers, policymakers, and other stakeholders evaluate large companies' non-financial performance, thereby encouraging these companies to develop a responsible approach to business while standardizing and simplifying sustainability reporting for companies. It amends the existing reporting requirements of the NFRD.

Financial and management statements will need to be prepared in XHTML format in accordance with the ESEF regulations and the EU sustainability taxonomy, with the sustainability information digitally ‘tagged' according to a digital categorisation system specified by the CSRD Regulation. Sustainability information must be "assured" by a third party that reviews the data.

Organizations will also be required to seek "limited" assurance of the sustainability information they disclose from an independent sustainability reporting partner organization or auditor.

The report will need to be filed annually, and include:

• management commentary and data on a company's materiality process to select material ESG themes, topics, risks, and focus areas;
• sustainability and ESG performance targets, goals, and progress;
• sustainability risks (including climate change) affecting the company, as well as the organization's operating impacts on society and environment;
• how sustainability and ESG risks could/are impacting operating results and business performance;
• environmental protection policies and actions;
• social responsibility and treatment of employees;
• respect for human rights; anti-corruption and bribery practices;
• corporate board diversity; and
• important social, human, and intellectual capital.

WHO:

• Large companies
  • All (listed and non-listed) large companies meeting at least two of the following:
    • Over 250 employees
    • More than €40M in annual revenue
    • More than €20M in total assets
  • International and non-EU companies with more than €150M annual revenue within the EU
• Small and medium enterprises
  • Publicly-listed companies with more than 10 employees or €20M revenue
  • The CSRD doesn’t place any new reporting requirements on small companies, except for those with securities listed on regulated markets. They can report using simplified standards.

LOCATION: European Union

WHEN:

• January 2024: Reporting entities already subject to the NFRD report in 2025 on 2024 data.
• January 2025: Large reporting entities not currently subject to the NFRD report in 2026 on 2025 data.
• January 2026: Listed SMEs, small and non-complex credit institutions and captive insurance entities report in 2027 on 2026 data. SMEs can opt-out until 2028.

WHERE: The sustainability information must be published in companies’ management reports (not separately reported) and digitized or “tagged” so it can be incorporated into a planned European Single Access Point.