The corporate sustainability world is changing fast. At its forefront is the Corporate Sustainability Reporting Directive (CSRD). So, what exactly is the CSRD, and how can companies follow its requirements? 

The Corporate Sustainability Reporting Directive mandates nearly 50,000 European Union companies to report their climate and environmental impact. This brief guide takes a detailed look at CSRD exploring the necessary steps for companies to navigate the challenges of CSRD reporting.

CSRD aims to firmly place sustainability at the heart of corporate action. Its key goal is to improve how sustainability information is shared with the public, focusing on transparency and consistency. This new standard, the CSRD, is a step up from the Non-Financial Reporting Directive (NFRD). It demands more from companies, aiming to provide a complete picture of their sustainability efforts.Plus, its influence is not limited to the EU. Even non-EU firms operating substantially in the EU must adhere to its rules, making it a global standard.

For companies wanting to lead, understanding the CSRD is crucial. To excel in sustainability reporting, they must meet the CSRD's rigorous demands

Key Highlights

• The CSRD was approved by the EU Council in 2022 and introduces more stringent reporting requirements for companies.

• The CSRD's scope extends beyond the EU, requiring non-EU companies with substantial business activities in the EU to comply.

• CSRD reporting requires companies to address both financial and environmental/social materiality, known as 'double materiality'.

• Compliance with the CSRD involves a comprehensive process, including assessment, data collection, reporting framework development, and continuous improvement.

• Large EU companies must begin data collection in January 2024 for reporting in 2025, while SMEs can start in January 2026.

• The CSRD mandates comprehensive reporting on social, governance, and environmental impacts, including detailed disclosures on pollution, water resources, biodiversity, and the circular economy.

• Compliance with the CSRD is crucial to avoid legal sanctions, reputational damage, and market exclusion.

Understanding the Corporate Sustainability Reporting Directive (CSRD)

Aim & Objectives

• To help investors, customers, and other stakeholders to understand how a company’s activity impact the Environment and society.

• Hold companies accountable for their sustainability claims and prevent greenwashing.

Scope and Applicability of the CSRD

The Corporate Sustainability Reporting Directive (CSRD) pertains to various entities. This includes listed companies and large EU-based undertakings. It also involves non-EU parent firms extensively operating within the EU boundaries. This move shows the EU's pledge to move the world forward in sustainable growth and clear business practices.

Listed Undertakings

Listed companies on EU-regulated markets must adhere to the CSRD guidelines. However, 'micro undertakings' are exempt if they fall below certain size boundaries.

Criteria: -

• Possession of total assets amounting to at least EUR 450,000.

• Net turnover (revenue) of at least EUR 900,000

• An average workforce of no fewer than 10 employees over the course of the year

 

EU-based Large Undertakings

For large entities, specific parameters apply, such as having a balance sheet upwards of €25 million. This group must also have net turnover surpassing €50 million along with over 250 employees.Categories of medium, small, and micro businesses incorporate distinct financial and workforce criteria as well.

Criteria: -

• Balance sheet total of more than 20 million euros

• Net turnover (revenue) more than 40 million euros.

• An average of 250 employees or more during the year

 

Third-country Undertakings

For non-EU entities, it is mandatory to publish reports if they exceed EUR 150 million in the EU market. This includes the necessity for consolidated sustainability reports. These apply to overseas companies with significant EU revenues and an EU-based subsidiary fitting specific requisites.

Criteria: - 

• A large EU-based undertaking, or

• An EU-based subsidiary with securities listed on an EU-regulated market exchange, or

• An EU branch office with a net turnover of at least EUR 40 million 

Key Requirements for CSRD Reporting

Companies must share about how they affect social, environmental, and governance areas. This info goes beyond their direct impact. It also covers how they handle the risks and chances in these areas. Reports should talk about climate, the environment, social rights, and how they treat employees.

Enhanced Reporting: -

The CSRD makes reporting follow the European Sustainability Reporting Standards (ESRS). These rules aim to make reports similar and clear. They make sure a company's sustainability work is easy to compare. Companies share details on various sustainability metrics and ESG impacts. This helps people understand the company's overall sustainability performance.

Double Materiality: - 

The CSRD looks at 'double materiality', so companies report on two main points. They show how sustainability affects their money (financial materiality) and the world around us (environmental/social materiality). By doing this, companies give a full view of their effect and what they need to do.

Regular and Consistent Reporting: -

The CSRD stresses regular and consistent reporting. Companies have to include sustainability in their yearly reports. This makes sure sustainability is part of planning, not just something added later. It becomes a vital part of a company's thinking and acting.

Assurance: - 

To make reports more trustworthy, the CSRD says they should be checked by independent auditors. This check makes sure the info is right and up to standard. Having independent audits shows a big step towards more trust and truth in sustainability reports.

 

Conclusion

The CSRD highlights corporate transparency and better ESG reporting. This makes a company more ethical in public eye. It also attracts green investments and boosts efforts to solve environmental and social issues. Making sustainability part of daily business unlocks chances for growth and makes companies more stable over time.

The CSRD is a big step for a better, more sustainable future. Companies that lead this change will succeed in the future. Putting effort into CSRD compliance shows a business’s dedication to good practices. It helps in the global push for a fairer and more sustainable world.