What is the Corporate Sustainability Reporting Directive (CSRD)?

Corporate Sustainability Reporting Directive - meeting

The Corporate Sustainability Reporting Directive (CSRD) is the latest EU legislation and regulatory framework that requires all large businesses to publish consistent reports on their social and environmental impact activities.  

Doing so helps consumers, investors, stakeholders, and policymakers assess a company’s non-financial performance, thereby encouraging corporate sustainability. Therefore, it drives these organisations to create more responsible business models. Continue reading to find out more about the CSRD and its reporting requirements. 

About the Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) was brought into force on the 5th of January, 2023. This new directive strengthens and modernises the rules regarding the environmental and social information organisations must report on. SMEs and a broader set of large organisations will not have to report on sustainability. This means around 50,000 businesses across the globe. 

These new regulations will make it simpler for stakeholders and investors to get the data they need to evaluate the investment risks associated with sustainability and climate change. The rules will also bring about a culture of transparency concerning the impact of businesses on the planet and people. 

Companies that must report in accordance with the CSRD must do so using the European Sustainability Reporting Standards (ESRS). The draft standards are developed by an independent body that gathers various stakeholders, known as the European Financial Reporting Advisory Group (EFRAG). 

Additionally, the standards will be tailored per EU policies, while also contributing to and building on global standardisation initiatives. Essentially, the CSRD extends the reporting requirements and scope of the already well-established Non-Financial Reporting Directive (NFRD). CSRD aims to make sure that businesses report comparable and reliable sustainability information in response to the rise of investments in green companies and technologies. 

Differences from the Non-Financial Reporting Directive (NFRD) 

As mentioned above, CSRD extends the reporting requirements and scope of the NFRD which poses the question of how they differ. The NFRD is concerned with large public interest entities with 500+ employees. By contrast, the CSRD is concerned with businesses of various sizes, including SMEs. The NFRD has been in use since 2018. 

By contrast, the CSRD is expected to be in use in January 2024 for the 2023 financial year. The number of companies concerned by the regulation also differs with 11,600 businesses complying with the NFRD and 49,000 being expected to comply with the CSRD. Another way the two directives differ is the scope of the reporting requirements in each. 

Under the NFRD, companies must report on environmental protection, social responsibility, respect for human rights, diversity on company boards, and anti-corruption and bribery. For CSRD, companies have to report on sustainability risks affecting the company and the company’s impact on the environment and society. The NFRD is also not mandatory, but the CSRD will be mandatory.

What information must be disclosed and which businesses must comply with the CSRD? 

The CSRD requires all large businesses to comply. This means organisations with over 250 employees and more than €40M turnover and all listed businesses except micro-enterprises with less than 10 employees and below €20M in turnover. 

In terms of the information that must be disclosed, large companies have to publish information concerning the following:

  • Social responsibility
  • Respect for human rights
  • Environmental protection
  • Diversity on company boards
  • Anti-corruption and bribery 

However, the CSRD is adding additional requirements, including the double materiality concept, which involves looking at the sustainability risks affecting the company and the organisation’s impact on the environment and society. 

Summary

The CSRD is an extension of the already existing NFRD and will substantially increase reporting requirements on the companies falling within its scope to expand the sustainability information available for users. Some 49,000 more companies are anticipated to be subject to EU sustainability reporting thanks to the CSRD.

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