Understanding the Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS)

As part of the European Commission's Sustainable Finance Package, the Corporate Sustainability Reporting Directive (CSRD) is a pivotal measure aimed at enhancing the flow of investments toward sustainable undertakings across the European Union (EU).

The CSRD builds upon and broadens the Non-Financial Reporting Directive (NFRD), upgrading it from a set of ESG reporting guidelines to a comprehensive directive enforcing mandatory sustainability reporting for all large-scale businesses.

The CSRD is set to bring about substantial changes to transparency and consistency in sustainability reporting for companies within the EU, with a focus on increasing the disclosure of climate-related risks and opportunities. It mandates that public interest entities report their sustainability performance from 2018 onwards, with these reports to be made by the 2024 reporting year.

Moreover, the CSRD intends to guarantee accurate and comparable sustainability reporting to facilitate the redirection of investments toward more sustainable technologies and sectors. Alongside the disclosures mandated by the NFRD, companies are required to disclose information on:

• Environmental Protection
• Social Responsibility and Employee Treatment
• Respect for Human Rights
• Anti-Corruption and Bribery Measures
• Board Diversity

CSRD Compliance: Who's Required?

The CSRD expands the coverage of sustainability reporting to more than 50,000 European businesses, accounting for 75% of all EU companies' turnover. It also extends its mandate to nearly 10,000 non-EU companies, requiring them to disclose their sustainability performance.

This new directive applies not only to companies with more than 500 employees, as stipulated by the NFRD, but also to all large-scale companies within the EU and a range of non-EU entities. This includes:

• EU companies with over 250 employees, a turnover exceeding €40M, or total assets above €20M
• Non-EU companies with EU branches or subsidiaries with a net turnover of €150M
• Non-EU companies with securities listed on a regulated market in the EU
• Non-EU companies with an EU branch netting revenue of more than €40M and/or an annual EU revenue exceeding €150M
• Non-EU companies with a large EU subsidiary

CSRD Timeline: When to Take Action?

The CSRD's timeline of enforcement is as follows:

• By 2025: Companies already under the NFRD must begin reporting for the 2024 financial year.
• By 2026: Large undertakings not previously subject to the NFRD must begin reporting for the 2025 financial year.
• By 2027: Small and medium enterprises, small non-complex credit institutions, and captive insurance undertakings must begin reporting for the 2026 financial year.
• By 2029: Non-EU companies with branches or subsidiaries must commence reporting.

A Six-Step Action Plan for CSRD Readiness

1. Familiarize with European Sustainability Reporting Standards (ESRSs)

Companies affected by the CSRD must acquaint themselves with the European Sustainability Reporting Standards (ESRSs), as they'll need to comply with these mandatory reporting standards in order to fulfill CSRD requirements.

2. Perform a Double Materiality Assessment

Under the CSRD, companies must conduct a materiality analysis through a double materiality approach. This analysis requires evaluation of all stakeholders and value chain levels, considering the short, medium, and long-term impacts of the company's operations.

3. Implement a Robust Data Collection and Monitoring System

Data collection from internal operations, suppliers, and business partners is a requisite under the CSRD. For the first time, an EU-wide audit requirement for ESG information is being introduced, necessitating rigorous data collection, monitoring, and documentation processes.

4. Integrate Risk Management and Sustainability Strategies

Effective CSRD compliance necessitates alignment of risk management with the company's sustainability strategy. Aligning these aspects allows for proactive risk mitigation and promotes an impactful sustainability strategy.

5. Develop a Reliable Reporting System

Following the guidelines of a robust reporting framework ensures the transparency and efficacy of the comprehensive management report that CSRD-affected companies are required to publish. Digitally accessible and independently audited reports enhance credibility and transparency.

6. Encourage Voluntary Compliance Ahead of Time

Voluntary compliance is a strategic move for businesses, ensuring they're prepared for the CSRD requirements ahead of the mandatory timeline. This also allows companies to integrate sustainability into their core business processes earlier, resulting in smoother future compliance.

In essence, the CSRD promotes the integration of reliable and comparable sustainability information into an audited reporting format, enabling investors to steer resources towards sustainable industries, thereby accelerating global progress towards net-zero. Given the financial, administrative, and legal implications of non-compliance, immediate action is crucial.

In anticipation of the CSRD, businesses must initiate data collection efforts now. Platforms like ours provide comprehensive carbon accounting and decarbonisation tools, empowering businesses to effortlessly collect and streamline their emissions data, measure and analyse their carbon emissions, and effectively report their sustainability and ESG performance.