Five things your business needs to know about the Corporate Sustainability Reporting Directive (CSRD)

Image
Flags EU

What are the main objectives of CSRD reporting? 

The new ambitious Corporate Sustainability Reporting Directive (CSRD) expands the current Non-Financial Reporting Directive (NFRD), which has already seen companies submitting sustainability information each year. The changes have been made in response to a growing recognition that information reported is often not sufficient for investors and other stakeholders to feel fully aware and confident about sustainability-related risks. Sustainability information increasingly needs to be comparable, trusted, and reliable and the new rules cater to this need.

CSRD is an essential part of the EU Green Deal, the system of rules and guidelines that was put in place by the EU to accelerate the transition to a sustainable economy. Indeed, CSRD seeks to provide financial markets with the right ESG information to channel private capital into financing the green and social transition.

What are the main differences between NFRD and the new rules under the CSRD?

CSRD regulation updates NFRD in a number of key ways to eventually bring sustainability reporting on a par with financial reporting: 

  • NFRD applies to large public-interest companies with more than 500 employees, covering around 11,000 businesses across the EU. CSRD expands on that, increasing the scope to almost 50,000 companies, including all large companies (categorised by certain criteria) and listed companies, listed SMEs and qualifying non-EU companies. 
  • Under CSRD, sustainability reporting will need to be more detailed than NFRD. For example, including strategy, policies and – crucially – a ‘double materiality assessment’ which means reporting will have to cover how sustainability issues impact an organisation as well as how the organisation impacts the planet and the people. Sustainability information will also have to be included in a company’s management report.
  • Where third-party assurance of reporting was not compulsory under NFRD, CSRD requires a mandatory level of accredited auditing against sustainability reporting standards.
  • These new standards are being developed primarily by the European Financial Reporting Advisory Group (EFRAG), shaped to EU policies, but also building on global initiatives. The European Commission will consult EU bodies and Member States on the current draft standards, before adopting the final standards as delegated acts in June 2023. 
  • CSRD has changed the way companies share their sustainability reporting information, requiring companies to submit their reports to a digital database. 

When do I need to comply?

The new rules will come into play in three phases from:  

  • 1 January 2024 – for companies already reporting in line with NFRD (reporting in 2025 on 2024 data).
  • 1 January 2025 – for large companies that are not currently subject to NFRD (reporting in 2026 on 2025 data).
  • 1 January 2026 – for listed SMEs, small and non-complex credit institutions and captive insurance undertakings (reporting in 2027 on 2026 data).
  • 1 January 2028 - reporting in 2029 on the financial year 2028 for third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds

Please note the above timeline differs from the original Commission proposal. 

Is CSRD in line with other international reporting frameworks?

The EU’s new regulations are very much driving sustainability reporting forward. For example, the fact that non-EU companies will also fall under the rules is ambitious. But the EU is at the same time building on and contributing to the global progress of sustainability reporting and standards. There is some alignment with other frameworks, such as risk assessments based on the UK’s Task Force on Climate-related Financial Disclosures (TCFD), and some of the targets included in the standards are in step with the Science Based Targets initiative (SBTi). 

If my business comes under the new rules, where do I start?

This depends on where you already are on your climate journey. For starters, you’ll need to know what you’re currently reporting on. Here are some tips:

  • Do a gap analysis. Critically assess your current sustainability reporting against the CSRD requirements.
  • Focus on the missing requirements identified by the analysis. These could either be completely new requirements or old ones that need to be updated for compliance with CSRD.
  • Start conversations internally and construct a team to assess what data is available.
  • Foster internal engagement across all teams, which is vital for successful reporting. This exercise does not just sit in the sustainability team. 

How the Carbon Trust can help

The Carbon Trust is a global climate consultancy driven by the mission to accelerate the move to a decarbonised future. We have been pioneering decarbonisation for more than 20 years, including supporting organisations as they transition to more sustainable business models. We have an established European team who can partner with your organisation on:

Get in touch

Contact us at europe@carbontrust.com for support, and sign up to our newsletter if you want to know more about current and upcoming European climate regulations.

Want help with your sustainability reporting?

We have an established European team who can partner with your organisation, advising on meeting the reporting requirements, and preparing you for upcoming regulations. Many of the reporting requirements under the climate-related disclosures are aligned with the services that Carbon Trust have been offering for the last 20 years giving us unrivalled expertise in the field.

Find out more