Corporate Sustainability Reporting Directive (CSRD)

Corporate Sustainability Reporting Directive (CSRD) is an EU law for better sustainability reporting.

What is the Corporate Sustainability Reporting Directive (CSRD)?

The CSRD (Corporate Sustainability Reporting Directive) is a significant regulatory initiative undertaken by the European Union (EU) to promote sustainable practices and transparency among companies operating within its region.

The CSRD, which reached a provisional political agreement in June 2022, is set to take effect in January 2024 for all relevant companies.

This new EU legislation aims to achieve a complete and transparent sustainability reporting across various industries, impacting approximately 50,000 companies. 

Key points of the CSRD

1. Strengthening and extending requirements

The CSRD builds upon the existing EU reporting requirements, particularly the Non-Financial Reporting Directive (NFRD). It extends the scope of reporting entities and values sustainability metrics alongside environmental performance.

The directive specifically pays attention to the “S” in ESG, focusing on areas such as:

• Employee health
• Human rights
• Bribery
• Anti-corruption
• Diversity. 

The ESG (Environmental, Social, and Governance) is a set of criteria used to evaluate the performance of a company and its practices in these three areas:

1. Environmental criteria examine at a company’s impact on the planet, including its carbon footprint and resource usage.
2. Social criteria assess how a company manages relationships with employees, suppliers, customers, and communities.
3. Governance criteria focus on a company’s leadership, corporate governance structure, and adherence to ethical standards.

2. Data-intensive disclosures 

The European Sustainability Reporting Standards (ESRS) under the CSRD include several data-intensive disclosures, covering aspects such as:

• Greenhouse gas emissions
• Waste management
• Water usage
• Recycling
• Social metrics

These standardized disclosures aim to provide a comprehensive view of companies’ sustainability performance.

3. Mandatory reporting for large companies

CSRD will be mandatory for all large European companies and companies listed on EU-regulated markets. This includes EU subsidiaries of non-EU parent companies.

Companies already subject to the NFRD must report on 2024 data in 2025.

4. Third-party assurance and external auditing

Unlike the NFRD, the CSRD requires third-party assurance and external auditing of sustainability information. 

This step aims to enhance the credibility and reliability of reported data, ensuring that claims related to ESG metrics and sustainability performance are supported by accurate and verified information.

5. Phased implementation

The CSRD is on track to enter into force in 2024. The implementation will be phased in gradually to give companies sufficient time to adapt to the new reporting requirements.

The directive will apply to different categories of companies on specified dates, ultimately covering approximately 49,000 organizations.

Why CSRD was introduced

The CSRD was introduced to address the limitations of NFRD and include a broader range of companies.

It aims to ensure consistent, standardized, and easily accessible sustainability data for investors.

The CSRD aligns with Europe’s climate-neutrality goals and the European Green Deal, fostering a sustainable and competitive industry. It also accelerates the EU’s progressive sustainability and climate policies. 

NFRD vs CSRD

The CSRD expands to over 49,000 organizations, compared to 11,700 in the NFRD. 

CSRD applies to all publicly-listed companies and those with more than 250 employees, EUR 40 million + turnover, or EUR 20 million + total assets. 

On the other hand, NFRD applies to large public interest entities with more than 500 employees. 

Another key difference is that CSRD requires third-party assurance and external auditing, while NFRD made it optional. Additionally, CSRD mandates a separate management report for sustainability disclosures, emphasizing a broader scope with social and governance metrics.

For more details, refer to the European Commission’s draft ESRS.

The CSRD reporting requirements

The European Financial Reporting Advisory Group (EFRAG) has drafted the ESRS that will fall under the CSRD. The ESRS provide a framework for how companies should report on ESG metrics to comply with the requirements of the CSRD.

The ESRS outline reporting requirements across four broad categories:

1. Cross-cutting: This category covers general principles, strategy, governance, and materiality assessment. These reporting requirements apply to all organizations wishing the scope of the CSRD.
2. Environment: The environment category encompasses reporting on climate change, pollution, water, and marine resources, biodiversity, resource use, and circular economy practices.
3. Social: The social category focuses on reporting aspects related to the organization’s own workforce, workers in the value chain, affected communities, consumers, and end-users.
4. Governance: Governance-related reporting includes disclosures on governance practices, risk management, internal control, and business conduct.