What is the CSRD?
This post will breifly explain the CSRD, which is the new sustainability reporting directive that the EU and EFRAG are working on.
In a bold move towards enhancing environmental action, the European Union (EU) has upgraded its previous Environmental, Social, and Governance (ESG) reporting program, Non-Financial Reporting Directive (NFRD), to a more comprehensive scheme known as the Corporate Sustainability Reporting Directive (CSRD). This new initiative is designed to standardise sustainability reporting to match the rigour and precision of financial reporting. As a result, companies will need to inject more thoroughness into their ESG reports to meet these regulatory requirements.
The introduction of CSRD expands the remit of the previous directive, increasing the number of participating organisations fourfold to an impressive 50,000. This inclusion means that numerous companies must disclose their full carbon emissions for the first time. It also encompasses around 10,000 non-European companies with large operations within the region.
Who has to report?
Affected Organisations The CSRD applies to public companies based in the EU (excluding micro-enterprises) and large private organisations within the EU. The definition of “large” here means having two or more of the following: (1) over 250 employees, (2) annual revenues exceeding €40 million, or (3) a balance sheet total above €20 million.
Non-European parent companies with EU subsidiaries that meet the above criteria must also submit CSRD disclosures. Some companies might choose to consolidate their reporting at the global level voluntarily.
Furthermore, the CSRD will eventually mandate such consolidated reporting for non-EU parent companies that record €150 million or more in annual EU revenues and maintain at least one branch or subsidiary that either generates €40 million in annual EU revenues or meets the criteria for being “large”. In these cases, the parent company will also be responsible for incorporating their non-EU operations.
ESRS reporting areas and requirements
The ESRS is categorised into four standards: one cross-cutting and three topical standards (Environmental, Social, and Governance).
General disclosures are the foundation of the entire report and follow the structure of a formal annual report, addressing areas such as company governance, strategy, risk management, and KPIs. These disclosures should also discuss due diligence policies across ESG topics, alignment with the EU taxonomy, stakeholder engagement practices, and, importantly, how the company evaluated the material impact of each ESG standard.
These standards revolve around five crucial topics: climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and the circular economy. Companies must fully disclose information relevant to these areas that substantially affect their operations. The CSRD dictates that this examination should encompass a wide spectrum of a company’s value chain.
Four social standards focus on the workforce, workers in the value chain, affected communities, and consumers and end-users. Companies must share relevant policies, processes, quantitative information, and impacts related to these topics.
This focuses on business conduct, asking companies to provide qualitative and quantitative disclosures, touching on practices for maintaining organisational transparency and addressing issues such as corruption and bribery. Quantitative metrics might include instances of bribery or the amount given in political contributions.
Understanding “double materiality” in the CSRD
Companies will conduct a "double materiality" evaluation to determine the materiality of a topic. This assessment considers both the company's impact on the environment and society and the impact of sustainability-related developments on the company itself. A topic is considered material if it carries significant consequences from either (or both) perspectives.
The evaluation invites a wide array of stakeholders to weigh in on the risks and opportunities across the topics covered by the CSRD, incorporating both metricbased measurements and qualitative assessments to understand potential impacts.
With input from various stakeholders—including scientific experts, customers, employees, and investors—companies will be able to determine which topics are materially important.
The outcomes of these materiality assessments then dictate which standards a company must include in their reporting, ensuring a focus on topics significant to both the organisation and broader society.
Sustainability Reporting with Confidence
In this rapidly evolving landscape, it is crucial for organisations to understand and navigate the complexities of CSRD reporting effectively. While this may appear daunting, there is no need for it to be overwhelming. Practical and informed support is readily available to guide you on this journey, helping to streamline and simplify your ESG reporting process.
Our comprehensive guide at Coreport.io offers valuable insights into the CSRD, giving you an in-depth understanding of the process. However, understanding the directive is only half the battle. You also need to know when and how to comply.
Enter our latest free CSRD Helper Tool. This straightforward tool will help you determine your organisation's compliance deadlines and guide you through the key aspects of fulfilling your obligations under the directive.
Ensuring a sustainable and resilient future requires us all to step up and act responsibly. Harness these resources to embrace the CSRD, use it to drive your sustainability initiatives and elevate your organisation's impact on the world. Start your CSRD journey today, and let's work together to foster a more sustainable future.