The CSRD will affect more than 50,000 businesses, with the purpose of improving transparency in sustainability reporting and make it easier for investors to compare different companies' environmental, social, and governance (ESG) perfomance.
What is the Corporate Sustainability Reporting Directive?
The CSRD is a new EU sustainability reporting directive that mandates companies to disclose their ESG performance. The CSRD replaces the Non-Financial Reporting Directive (NFRD) of 2014, which has become inadequate in the face of current sustainability targets. In order to build a green and sustainable economy, the EU is improving its sustainability reporting standards, providing financial markets with transparent and reliable ESG information to attract new investors.
Who has to comply with the CSRD?
Approximately 50,000 businesses (75% of which are in the European Economic Area) will be impacted by the CSRD, compared to 11,000-17,000 under the NFRD.
The CSRD impacts a broad range of companies operating within the EU, including those listed on EU-regulated markets, large companies, and non-EU companies with a presence in the EU through branches or subsidiaries. While being enforced by the EU, this directive on corporate sustainability reporting will also concern many British businesses.
To be considered a large company under the EU's guidelines, a business must meet at least two of the following criteria:
- Employing more than 250 people
- Having an annual turnover exceeding €50 million
- Possessing an annual balance sheet greater than €43 million
- Fewer than 250 employees
- Annual turnover not exceeding €50 million
- Annual balance sheet lower than €43 million
- CSRD reporting requirements
To meet the sustainability reporting requirements of the EU directive, companies will have to:
- Report both the sustainability-related impacts on their business (financial materiality) and their activity impacts on people and the planet (impact materiality). This refers to the concept of double materiality.
- Perform a retrospective and forward-looking analysis with both quantitative and qualitative information.
- Disclose climate-related information, including Scope 3 carbon emissions (indirect emissions produced along the reporting organization's value chain).
- Audit data prior to publication.
- CSRD timeline
Large businesses must disclose their first CSRD report, following the EU sustainability reporting standards, for the 2024 financial year. All EU Member States must comply with the CSRD by July 6, 2024.
The EU CSRD will be implemented in four phases:
- Companies that are already subject to the NFRD must start reporting in 2025, covering their 2024 financial year.
- Large companies not currently subject to the NFRD must start reporting in 2026, covering their 2025 financial year.
- Listed SMEs (excluding micro undertakings), small and non-complex credit institutions, and captive insurance undertakings must start reporting in 2027, covering their 2026 financial year.
- International companies with net turnovers above €150 million in the EU and at least a branch or subsidiary in the EU exceeding that threshold must start reporting in 2029, covering their 2028 financial year.
The exact penalties for non-compliance are not yet known, but businesses who fail to follow the directive could face significant fines as outlined by the EU Commission.
Conclusion
The CSRD is a key step towards enhanced corporate transparency and quality in sustainability reporting. In fact, it's been adopted by more than 60 countries around the world! The CSRD will affect thousands of companies and their investors, so it's important to know when and how it will impact your business. We hope this article has helped you understand that a bit better.
How Green Future Project can help?
Between multiple deadlines, requirements, and other frameworks related to the directive, complying with CSRD can seem like a daunting task. Green Future Project's Energy Management & Carbon Footprint can simplify your reporting process and provide you with all the data you need, ready to be reviewed.
With the Energy Management & Carbon Footprint software, you can calculate your company's CO2 emissions, monitor consumption energy, identify areas for decarbonization, and put in place concrete actions to achieve your ESG strategy.
