Updated June 2022
The Corporate Sustainability Reporting Directive (CSRD) is the EU’s new proposed directive obliging large companies to report on the social and environmental impacts of their activities. The new legislation will cover nearly 50.000 companies and is proposed to be applied already for the 2023 financial year, with the first reporting on January 1st, 2024.
To help you get ready for the new reporting directive, we gathered everything you need to know about the CSRD. Why is it needed? What are the requirements and what companies are affected? This five-minute summary will provide you with all the essential facts you need to know to become a CSRD expert in no time!
NFRD becomes CSRD: new changes to EU’s directive on corporate sustainability reporting
In 2021, The European Commission (EC) issued a proposal for a Corporate Sustainability Reporting Directive (CSRD) to revise, expand and strengthen the current sustainability reporting framework of the Non-Financial Reporting Directive (NFRD). As stated in the proposal, the EC discovered a gap between the sustainability information that companies report on and the needs of the intended users of that information in the current NFRD framework. The framework in its current form fails to guarantee that the information provided by companies is reliable, comparable and relevant. The EC also identified the NFRD framework to be problematic for the reporting companies as well, as it lacks precisions on its requirements, and a large number of private standards and frameworks in existence makes it difficult for companies to know exactly what information they should report. Plus, these companies often experience difficulties in getting the information they themselves need from suppliers and clients. So, to tackle these problems, the EU formed the CSRD, aiming to ensure that companies disclose comparable, relevant and reliable sustainability information while simultaneously making it crystal clear what companies have to report on.
Who has to comply with the CSRD?
The reporting rules introduced by the NFRD only apply to so-called “public interest entities” meaning listed companies, banks, and insurance companies with more than 500 employees – translating to around 11.000 companies.
"SMEs that don’t report their ESG information may find themselves at risk of exclusion from investment portfolios, especially as ESG is only becoming more and more important for investors.
The new CSRD directive will significantly extend the scope of companies subject to the reporting requirements to the following:
1. All large companies, regardless of capital market orientation that meet at least two of the following three requirements:250 or more employees:
40 million EUR in net turnover;
20 million EUR in assets
2. All listed companies on EU regulated markets. This applies also to companies not established in the EU but are listed on EU-regulated markets generating a net turnover of 150 million EUR and which have at least one subsidiary or branch in the EU.
3. Small and Medium Enterprises (SMEs) listed on EU regulated markets from the financial year 2026. SMEs will have separate, less rigorous standards compared to the standards applied to larger companies that they have to report in 2027 for the financial year 2026. Although SMEs are not yet required to comply with the CSRD, starting to report under the new directive will only help your organization to better prepare and smoothen the process. Besides, SMEs that don’t report their ESG information may find themselves at risk of exclusion from investment portfolios, especially as ESG is only becoming more and more important for investors.
Micro-enterprises with less than 10 employees or below 20 Million 20 EUR are the only ones not covered by the CSRD. This means that nearly 50.000 companies in the EU will be covered by the CSRD framework, corresponding to 75% of EU’s companies turnover.
What information needs to be disclosed to comply with the CSRD?
To comply with the CSRD companies have to to publish regular reports on the social and environmental impacts of their activities in line with the EU sustainability reporting standards. The first set of standards will be adopted by October 2022 and be tailored to EU policies, while building on and contributing to international standardization initiatives. Companies must also ensure that the sustainability information is published in their Management Report along with their financial information, as well as having the information assured by an independent 3rd party evaluator.
Following the NFRD under current Directive 2014/95/EU, large companies are to publish information related to:
- Environmental protection;
- Social responsibility and treatment of employees;
- Respect for human rights;
- Anti-corruption and bribery;
- Diversity on company boards (age, gender, educational and professional background)
With the CSRD adopted, the following additional requirements are added:
-
Double materiality concept: Sustainability risk (incl climate change) affecting the company + Companies’ impact on society and environment;
- The process to select material topics for stakeholders;
- More forward-looking information, including targets and progress thereon;
- Disclose information relating to intangibles (social, human and intellectual capital);
- Reporting in line with Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation
(source: kpmg)
The CSRD’s Timetable (Updated!)
In June 2022, the Council and European Parliament reached a first provisional political agreement on the directive. The agreement discloses that the application of the regulation will take place in three stages:- The financial year 2024: Companies with an average of 500 employees (report published in 2025).
- The financial year 2025: Companies with 250+ employees and/or 40 Million EUR in turnover and/or 20 Million EUR in total assets.
- The financial year 2026: SMEs, small and non-complex credit institutions and captive insurance undertakings must report to a separate, proportionate reporting standard for the financial year 2025. There is a possibility for SMEs to opt out of the reporting rules until 2028. However, the organization must provide a statement in its management report briefly declaring why the sustainability reporting was not provided.
Comply with the CSRD in Worldfavor
Collect, analyze and organize your sustainability information in Worldfavor’s user-friendly platform to become CSRD-compliant without the hassle! Worldfavor's global network connects organizations across the world to access, share, and gain insights from sustainability and compliance data – making it easy for you to access all information you need to comply with the EU directives' requirements.
Sounds like something your organization is looking for? Contact us today for a customized tour of the platform and how your organization can benefit from working in Worldfavor.
Related blog posts you might like:
