The corporate sustainability reporting directive (CSRD) raises the bar on environmental reporting by European Union (EU) businesses. It’s landmark legislation adopted by the EU that will impact nearly 50,000 companies – yikes!

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It isn’t a bad thing though because the CSRD regulation aims to bring even more businesses into the mandatory reporting cap and push for transparency. This regulation in the EU is stricter than its predecessor. 

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In this article, we’ll explain: What is corporate sustainability reporting, who it impacts, what the requirements are and how it may help EU countries and the world align with the Paris Agreement.

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What is the CSRD?

Simply put, the CSRD is EU legislation that requires EU-based companies or non-EU companies with subsidies and operations in the block to disclose information regarding their environmental and social impact and how their initiatives affect the business.

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It mandates environmental, social, and governance (ESG) reporting for large companies based on the CSRD framework. The regulation is based on double materiality in that it requires disclosure of the business’s impact on the environment and people and any ESG-related activities' impact on the company’s performance.

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The CSRD was adopted in late 2022 but will go into effect in phases beginning in 2024 and replaced the non-financial reporting directive (NFRD), which was limited in scope and application.

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Which companies do the CSRD impact?

As mentioned, the CSRD is estimated to target nearly 50,000 EU and non-EU companies, increasing the number of companies required to make its ESG reports public. Here are the criteria for different types of companies:

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Listed EU companies

All companies listed on EU-regulated market exchanges are required to report ESG data under the CSRD. The only exception is listed micro undertakings that fail to meet at least two of the three criteria below from two consecutive balance sheets: 

• Assets worth EUR 450,000 or more
• Net turnover of EUR 900,000 or more
• 10 employees or more throughout the year

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EU companies

Any EU-based company, public or private that meets at least two of the following criteria for two consecutive balance sheets:

• Assets worth EUR 25 million or more
• Net turnover of EUR 50 million or more
• 250 employees or more throughout the year

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Non-EU companies

In addition to EU companies, non-EU companies that meet the following CSRD criteria are also liable to report:

• The parent company of an EU-based subsidiary
• EU revenue of EUR 150 million or more in the last two years
• EU-based branch office with a net turnover of EUR 40 million or more

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What needs to be reported under CSRD?

CSRD mandates and encourages a wide range of disclosures. It requires companies to disclose their business activities' direct and indirect impact. In other words, CSRD also targets Scope 3 emissions (value chain emissions) both downstream and upstream, which are difficult to calculate and often make up the better part of a company’s carbon footprint. 

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In addition, companies are supposed to form and share policies regarding sustainability and disclose transition plans regarding how they plan to reduce their emissions and address any social or governance issues. Similarly, they should also report on sustainability risks associated with their activities and investments. 

CSRD timeline: When does it go into effect?

Not all targeted companies will be impacted right off the bat, as the CSRD will go into effect in phases starting in 2024. So, affected entities will have time to prepare and adopt policies accordingly. 

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Here’s what the timeline looks like:

• 2024 fiscal year – companies already required to report under the NFRD
• 2025 fiscal year – large companies that weren’t covered under the NFRD
• 2026 fiscal year – small and medium-sized listed EU companies
• 2028 fiscal year – non-EU companies

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The reporting requirement will apply following each fiscal year. For example, the companies affected in the fiscal year 2024 will begin reporting in 2025. 

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ESRS – the CSRD reporting standard

The European Sustainability Reporting Standard (ESRS) outlines the reporting framework and details the CSRD requirements. The European Financial Reporting Advisory Group (EFRAG) created the ESRS comprising 12 standards. These standards are divided into four distinct groups and are as follows:

• Cross-Cutting: General requirements and general disclosures (ESRS 1 and 2)
• Environmental: Climate, pollution, water and marine resources, biodiversity and ecosystems, resource use, and circular economy (ESRS E1 to E5)
• Social: Own workforce, workers in the value chain, affected communities, and consumers and end users (ESRS S1 to S3)
• Governance: Business conduct (ESRS G1)

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Cross-cutting reporting is mandatory for all companies in the scope of CSRD. However, the remaining standards are subject to materiality assessment. Companies will only be required to report data relevant to their business, so don’t worry – you might not need to do them all. 

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These standards essentially provide guidelines on what needs to be reported and how. So, ESRS is the blueprint for sustainability reporting under the CSRD. 

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CSRD’s potential impact (and why sustainability reporting is important)

The CSRD aims to offer transparency to all stakeholders, including investors and consumers. It brings even more large and medium-sized companies into the mandatory sustainability reporting umbrella. 

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This directive is the first of its kind to expand the reporting requirements to value chain emissions for a large number of companies. Companies have largely been optionally reporting these emissions. Even when reported, they were based on estimates and rife with inaccuracies.

In short, the CSRD will increase accountability and encourage companies to set sustainability goals that ultimately help them go net zero. 

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Preparing for changes in ESG reporting

The CSRD will impact many companies in and outside the EU, but not immediately. That gives many businesses ample time to prepare for the directive, understand the standards, and develop ESG policies and targets that help them reduce their emissions. 

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Impacted companies will need to determine how they can collect relevant data and work with their suppliers and partners to disclose value chain emissions.

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FAQs

What does CSRD stand for?

The CSRD stands for Corporate Sustainability Reporting Directive. The legislation requires EU and certain non-EU companies to disclose ESG data and performance. 

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What is the aim of CSRD?

CSRD aims to expand ESG reporting requirements to large EU and non-EU companies. It also requires companies to report their value chain emissions, bringing more transparency into business operations and their environmental impact. 

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How to write a CSRD report?

The ESRS standards provide guidelines on what companies impacted by the CSRD need to report. They offer guidelines on materiality assessment, a pre-requisite to reporting, and details on metrics that must be reported. Find out more on the EU website.

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