The EU’s new CSRD (Corporate Sustainability Reporting Directive) aims to make organisations more competitive and resilient while at the same time stimulating a more holistic sustainability-mindset.
The CSRD was published by the European Commission in mid-2021 and will replace the current NFRD (Non-Financial Reporting Directive) starting on the 1st of January 2024. The NFRD explains the rules on disclosure of non-financial and diversity information by certain large companies, including sustainability reporting.
The new CSRD will require organisations to report not only on the inward focus (the development of the company and its financial interests), but also the outward focus (their impact on the environment). This will furthermore increase the incentive for organisations to balance the financial side with the environmental side of doing business and to get a more holistic approach towards “development” and “growth”. This type of reporting has been introduced earlier in other standards such as TCFD and is known as double materiality reporting.
What is CSRD?
Changes of the upcoming CSRD reporting requirements (w.r.t current reporting legislation):
Currently, the NFRD applies to approximately 12.000 organisations within the EU region. The new CSRD legislation will apply to more than 50.000 companies across all sectors.
Furthermore, companies will have to report on additional disclosures and extra dimensions from the Sustainability Reporting Standards, soon to be released by the EFRAG. The first set of standards (release on 31st of October 2022) include the guidelines on two main concepts:
- Double materiality: reporting on inward and outward impact (and alignment to the Paris Agreement of 1.5°C-2°C global warming limit).
- The quality of sustainability information.
The second set of standards (release on 31st of October 2023) will help companies finetune their reporting and addresses, including:
- The 4 remaining conceptual guidelines:
- Levels & Boundaries of reporting
- Retrospective and forward-looking information
- Public Good.
- The requirements for your sustainability strategy & business model.
To which companies does the new CSRD apply:
- Applies to all large companies that are governed by the EU law or established in an EU member state. Including those who already fall under the NFRD. This means all companies that meet at least two of the following three requirements:
- €40 million in net turnover;
- €20 million on the balance sheet;
- 250 or more employees.
- Applies to all European stock exchange listed companies (except micro companies) and global businesses that have operations/securities in Europe.
When to comply with the new CSRD:
Where to report the new directive:
The CSRD has to be reported on in the management report instead of a separate sustainability report. Therefore, financial and sustainability information will be disclosed at the same time.
Furthermore, companies need to tag their sustainability information digitally to make it available in the upcoming European Single Access Point (ESAP) database.
Alignment with other EU legislation:
The reported information should, of course, be consistent and in alignment with EU regulations, including the EU Taxonomy* and the EU Sustainable Finance Disclosure Regulation (SFDR)*.
*https://ecochain.com/knowledge/everything-about-the-corporate-sustainability-reporting-directive/ (accessed on 29/03/2022).
The new CSRD gives a greater obligation, but also support in guiding organisations towards taking a greater responsibility when it comes to analysing their own role and contribution towards a healthier planet and thinking about how they may be affected by a changing economy. In other words, it stimulates companies to adopt a more holistic and more forward looking attitude and making them and the world around them more competitive and resilient in a rapidly changing economy and climate.
Companies will therefore have to start thinking about several fundamental questions regarding their sustainability strategy & business model in order to stay in the game.
Preparing for the CSRD
The CSRD is just one step in the increasing amount of sustainability legislation that companies have to prepare for. With the extra information required, it would be wise for companies to start preparing for the new directive as soon as possible (2022 onwards).
As an expert in sustainable strategies and environmental impact assessments, Ecoras is happy to answer any questions you have relating to the development of your sustainability strategy & business models, stakeholder engagement, and other environmental-related matters that are affected by – or affect – your business such as greenhouse gas emissions and other environmental impact assessments. More details can be found here.