Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) is a crucial framework that enhances transparency and accountability regarding corporate sustainability practices for companies in the EU. In this article, we will explore the key aspects of CSRD, its requirements, and why it matters to businesses.

What is CSRD?

CSRD refers to the Corporate Sustainability Reporting Directive, a mandatory reporting framework implemented by the European Union (EU) as of 5 January 2023. 

It enhances sustainability reporting and disclosure requirements for companies operating within the EU. CSRD promotes transparency and accountability on environmental, social, and governance (ESG) factors. 

It expands existing reporting obligations, integrating sustainability into business strategies, mandating disclosure on topics such as environmental impact, social matters, human rights, anti-corruption, and board diversity. 

CSRD improves comparability, consistency, and reliability of sustainability reporting across the EU as it sets specific requirements for recognized standards, performance indicators, and assurance. 

The difference between CSRD and Non-Financial Reporting Directive (NFRD)

CSRD replaces the Non-Financial Reporting Directive (NFRD) and introduces more comprehensive reporting requirements. Unlike the NFRD, which focused on certain large public-interest entities, CSRD expands the reporting scope to cover all large companies and all listed companies in the EU.

 CSRD emphasizes the concept of double materiality, addressing both the impact of companies on society and the influence of sustainability issues on the reporting company.

Who does CSRD apply to?

CSRD applies to large companies and all listed companies in the EU - if they meet a certain threshold. If a company meets two of the following criteria, then reporting under the Corporate Sustainability Reporting Directive: 

• €40 million in net turnover
• €20 million in assets
• 250 or more employees

What should be reported under the Corporate Sustainability Reporting Directive?

Under the Corporate Sustainability Reporting Directive (CSRD), companies are required to report on various sustainability aspects. These include:

• Double materiality: Companies need to disclose information on the impact of their activities on society and the environment, as well as the impact of sustainability issues on their business.
• Scope 3 emissions: CSRD introduces reporting requirements for Scope 3 emissions, which are indirect greenhouse gas emissions occurring in the value chain of a company.
• Additional areas: CSRD may also cover other relevant sustainability topics such as social matters, corporate governance, diversity, and more.

Requirements

To comply with CSRD, organizations are expected to publish their sustainability report on their website. The report should include relevant information on environmental, social, and governance (ESG) factors. It encompasses topics such as climate change mitigation, sustainable resource use, social responsibility initiatives, science-based targets, adherence to the EU taxonomy, and more.

Why is reporting under CSRD important?

Reporting under the Corporate Sustainability Reporting Directive (CSRD) holds significant importance beyond mere legal compliance. By embracing CSRD reporting, businesses can:

Gain a competitive edge

Demonstrating strong commitment to sustainability and transparent reporting can enhance a company's reputation, attract investors, and differentiate it from competitors.

Meet stakeholder expectations

Customers, investors, and other stakeholders increasingly prioritize companies with robust sustainability practices. CSRD reporting fosters trust and transparency, meeting these expectations.

Enhanced risk management

It also requires businesses to look inwards and evaluate the risks and opportunities they face as a result of climate change, bolstering their risk management. This helps to future proof the business as increasingly stringent regulations are introduced, which enables businesses to be more responsive to new initiatives.

Align with global standards

CSRD aligns with international sustainability reporting frameworks, promoting harmonization and comparability of sustainability information across organizations.

How the Corporate Sustainability Reporting Directive will affect businesses

The Corporate Sustainability Reporting Directive (CSRD) will have a substantial impact on businesses, transforming the way they approach sustainability reporting. Here are some key ways in which CSRD will affect businesses:

Enhanced reporting requirements

CSRD expands the scope of reporting obligations, encompassing a broader range of companies, and the disclosures they are required to provide. This means that more businesses will need to gather and disclose comprehensive sustainability information, including both environmental and social aspects. 

The increased reporting requirements will require organizations to allocate additional resources to collect, verify, and report on relevant data.

Improved transparency and comparability

CSRD aims to enhance the consistency and comparability of sustainability reporting. By introducing specific reporting standards, methodologies, and disclosure requirements, CSRD will make it easier for stakeholders to analyze and compare the sustainability performance of different companies. 

This will encourage businesses to improve their reporting quality and provide more reliable and standardized information.

Integration of sustainability into business strategies

With CSRD, sustainability reporting will become an integral part of a company's overall business strategy. Businesses will need to align their sustainability goals and targets with their financial objectives and communicate the links between sustainability performance and financial performance. 

This integration will drive more strategic decision-making and the adoption of sustainable practices throughout the organization.

Impact on investor decisions

Investors are increasingly considering environmental, social, and governance (ESG) factors when making investment decisions. 

CSRD reporting will provide investors with a more comprehensive and standardized view of a company's sustainability performance, enabling them to assess the long-term viability and risk profile of potential investments. Businesses that proactively embrace CSRD and demonstrate strong sustainability practices may attract more ESG-focused investors.

Regulatory compliance and enforcement

CSRD will introduce stricter enforcement measures to ensure compliance with reporting obligations. Companies failing to meet the requirements may face penalties or reputational risks. 

It is crucial for businesses to familiarize themselves with CSRD provisions, establish robust reporting processes, and engage with relevant stakeholders to ensure compliance and avoid potential consequences.

CSRD will bring about significant changes in how businesses approach sustainability reporting. It will require greater transparency, standardized reporting practices, integration of sustainability into business strategies, and a focus on meeting investor expectations. By embracing CSRD, businesses can strengthen their sustainability performance, gain a competitive edge, and contribute to the transition towards a more sustainable future.

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FAQs about the CRSD

When did CSRD come into effect?

The Corporate Sustainability Reporting Directive (CSRD) was officially adopted by the European Union on June 22, 2021. It will replace the existing Non-Financial Reporting Directive (NFRD) and is expected to come into effect from the reporting year 2023 onwards.

Does CSRD apply to the UK?

Yes, the CSRD applies to the United Kingdom. While the UK has exited the EU, it has implemented similar sustainability reporting regulations aligned with EU directives. Therefore, UK-based companies meeting the CSRD's criteria will be required to comply with the reporting obligations.

Is CSRD reporting mandatory?

Yes, CSRD reporting is mandatory for certain companies. It applies to large companies and all listed companies in the European Union. The directive introduces a threshold based on annual turnover, and companies exceeding this threshold will be required to comply with CSRD reporting requirements. The aim is to promote standardized and consistent sustainability reporting across the EU.