The Corporate Sustainability Reporting Directive (CSRD) marks a significant advancement in the European Union’s commitment to sustainability reporting, impacting a vast network of over 50,000 companies. As of March 2024, investors are increasingly prioritizing the integration of environmental, social, and governance (ESG) goals alongside financial objectives. This heightened demand highlights the need for greater transparency and accountability from businesses regarding their sustainability practices.

This guide aims to provide a comprehensive overview of the reporting directive, outlining its objectives, the entities it affects, and the types of disclosures it requires. Our goal is to equip you not only with the knowledge necessary for CSRD compliance but also with strategies to leverage sustainability reporting as a tool for business growth and resilience.

When does the CSRD come into effect?

The CSRD unfolds in stages, with the first phase beginning for financial years starting on or after January 1, 2024. In the initial phase, the CSRD primarily applies to large companies already complying withthe Non-Financial Reporting Directive (NFRD), to ensure they meet the updated standards of this new directive. Subsequent phases will extend the directive’s scope to include smaller companies, listed SMEs, and non-EU companies with significant operations within the EU. The directive is expected to be fully implemented by January 1, 2026.

This phased approach gives businesses sufficient time to prepare for compliance, minimizing operational disruptions.  The detailed timeline serves as a roadmap, facilitating a smooth transition toward comprehensive sustainability reporting. Through these measures, the CSRD aims to help companies to contribute effectively to the EU’s ambitious sustainability and climate objectives.

Who does CSRD apply to?

The CSRD broadens the scope of businesses required to share sustainability information compared to the previous NFRD. Understanding which entities fall under this directive is crucial for ensuring compliance and capitalizing on the opportunities it offers for demonstrating a commitment to sustainability. Below, you will find a clear breakdown of the types of companies affected by the CSRD:

1. Large Companies: This category includes large public-interest entities with over 500 employees, a net turnover of more than EUR 40 million, or a total balance sheet exceeding EUR 20 million. These companies were previously subject to reporting under the NFRD and will continue to be under the CSRD.
2. Listed Companies: Small and medium-sized enterprises (SMEs) that are listed on EU regulated markets (excluding micro-enterprises) are also required to comply to the directive. However, standards are adjusted to accommodate their smaller size and resources.
3. Non-EU Companies: The directive extends to companies not based in the EU but with substantial activity in the EU market, specifically those generating a net turnover of more than EUR 150 million in the EU. These entities must provide a sustainability report if they meet the specified criteria.
4. Other Financial Market Participants: This category includes banks and insurance companies, regardless of their size, due to their role in financing sustainable growth and the importance of ESG factors in their operations and risk assessments.

Is your company subject to CSRD?

Here’s a quick checklist to determine if your company falls under the CSRD:

• Does your company have over 500 employees or a financial turnover exceeding EUR 40 million? Is your company listed on any EU regulated market? (Exceptions apply for micro-enterprises.)
• Is your non-EU based company significantly active in the EU market, with a net turnover of EUR 150 million?
• Does your company operate within the financial sector, including banking and insurance?

If you answered yes to any of these questions, the CSRD applies to your company, and it’s time to prepare for its requirements.

What must be reported under the CSRD?

The CSRD requires companies to report on various environmental, social, and governance matters, using a “double materiality” perspective. This means companies must disclose how sustainability issues affect their business operations and financial performance, as well as the impact of their activities on people and the environment. Below is an overview of key areas that must be reported:

• Environmental Matters: Reporting should cover their environmental impact, including factors such as greenhouse gas emissions, water and air pollution, biodiversity preservation, and adherence to circular economy principles.
• Social Matters: Companies must report on the social impact of their operations, covering employee welfare (e.g., health and safety, and labor relations), community engagement, human rights considerations, and measures to ensure product safety and consumer protection.
• Governance Matters: Disclosure should outline governance frameworks and practices, especially concerning sustainability issues. This includes details on business ethics, anti-corruption measures, and the integration of sustainability into corporate strategies.
• Risk Management: Companies are required to disclose their approach to identifying and managing sustainability-related risks and opportunities. This involves outlining risk assessment processes, management strategies, and how these factors influence their business model and strategy.
• Impact Assessment: Reporting should address both actual and potential impacts of business activities on people and the environment, including positive contributions and negative consequences.
• Sustainability Goals: Information on sustainability targets, progress toward these goals, strategies employed, and alignment with broader sustainability frameworks like the UN Sustainable Development Goals should be provided.
• Intangible Assets: The directive emphasizes reporting on intangible assets such as intellectual property and human capital, recognizing their significance in fostering sustainable value creation.

Reporting guidelines under the CSRD?

The Corporate Sustainability Reporting Directive not only expands the scope of reporting for companies but also introduces specific requirements on how this information should be communicated. These requirements aim to ensure transparency, consistency, and comparability across sustainability reports. Below are the key reporting guidelines outlined by the CSRD:

• Standardized Frameworks: Companies are required to follow detailed and standardized reporting frameworks to ensure consistency and comparability. The European Financial Reporting Advisory Group (EFRAG) has developed specific standards under the CSRD to guide companies on report content and presentation.
• Digital Formatting: To enhance accessibility and analysis, sustainability reports must be prepared in a digital format. This facilitates the integration of sustainability data into digital platforms, making it easier for stakeholders to access and analyze the information.
• Assurance Requirement: The CSRD introduces limited assurance of sustainability information, requiring external auditors or independent assurance providers to verify compliance with the directive’s standards. This aims to increase the reliability and credibility of sustainability reports.
• Integration with Financial Reporting: The directive encourages the integration of sustainability reporting with financial reporting to provide a holistic view of company performance, highlighting interconnections between financial and sustainability-related data.
• Reporting on Strategy and Business Model: Companies must explain how sustainability issues impact their business model and strategy, including the resilience of their model against sustainability-related risks.
• Forward-looking Information: In addition to historical data, companies are expected to provide forward-looking information on sustainability matters, including projections and targets. This helps stakeholders understand the company’s future sustainability trajectory.
• Double Materiality Perspective: Reports must consider the double materiality perspective, assessing both the impact of sustainability issues on the company and the company’s impact on society and the environment.

By adhering to these guidelines, companies not only comply with CSRD requirements but also contribute to a more sustainable economy, equipping stakeholders with essential information to make informed decisions regarding social and environmental impact, governance practices, and sustainability risks and opportunities.

When must the CSRD report be submitted?

Under the Corporate Sustainability Reporting Directive (CSRD), the timing for submitting sustainability reports is strategically  aligned  with the financial reporting cycle, ensuring stakeholders have synchronized access to both financial and sustainability information.

Submission Deadline: Companies are required to include sustainability information within their annual management reports. This ensures that sustainability reporting reflects the same reporting period as the financial data, offering a comprehensive view of the company’s performance over the past year.

Specific Deadlines:

• As of January 1^st, 2024, companies already subject to NFRD must submit their CSRD-complaint reports by 2025.
• As of January 1^st, 2025, large companies not previously subject to NFRD requirements must submit their CSRD reports by 2026.
• As of January 1^st, 2026, listed SMEs, as well as small and non-complex credit institutions and captive insurance companies, must submit their CSRD reports by 2027.

Adhering to these deadlines is essential for compliance, fostering transparency and accountability with investors, regulators, and other stakeholders interested on assessing both financial health and sustainability performance.

Guidance every step of the way

Embarking on your CSRD compliance journey might feel overwhelming, but you are not alone.  Our team of sustainability experts is here to guide you every step of the way. From understanding the intricacies of the CSRD to implementing effective reporting practices, we are committed to driving your business toward a more sustainable future.

Moreover, our commitment to sustainability is exemplified by our carbon footprint calculator tool, which is utilized for internal calculations certified under ISO 14064-1 standards. It enables us to deliver precise, customized calculations tailored to your organization’s specificities. Working closely with organizations, we quantify environmental impacts and devise strategic reduction strategies.

Whether you’re just starting to explore sustainability reporting or looking to refine your existing practices, our experts provide tailored advice and hands-on support. Contact us now!