Essential Guide to CSRD
- esgnewsindia
- Nov 1, 2024
- 6 min read
The Corporate Sustainability Reporting Directive (CSRD) is a piece of ESG regulation introduced by the European Union (EU). It represents a significant shift in terms of expectations on how companies report on ESG issues.
This guide has everything you need to know about CSRD, including the requirements, scope, and implications for businesses inside and outside the EU, so you can get started with complying.
Table of Contents
1. What is CSRD?
CSRD is an EU regulation intended to improve the consistency and quality of sustainability reporting by companies. It builds upon the requirements of the previous EU regulation Non-Financial Reporting Directive (NFRD) while requiring companies to provide much more information to stakeholders about their sustainability performance and risks.
The full CSRD regulation is here.
The EU page for the regulation is here.
2. What exactly does it require?
CSRD requires companies to disclose information across different sustainability issues, including environmental impact, social and employee-related matters, respect for human rights, and anti-corruption measures. Companies must report according to European Sustainability Reporting Standards (ESRS), which provide specific guidelines on the type of information that needs to be included in sustainability reports.
The ESRS are here.
Key CSRD Reporting Requirements:
ESRS Standards | Related Requirements | ||
Cross Cutting Standards | ESRS 1: General Requirements | Governance | Double Materiality Assessment |
Time Horizons | |||
Strategy | ESG Risks in value and supply chains | ||
Sustainability policies | |||
Impact, Risks and Opportunities | Due diligence | ||
ESRS 2: General Disclosures | Target Metrics and Transition Plans | ||
Metrics and Targets | Identify Sustainability Risks | ||
Third Party Auditing of report | |||
Topical | Environmental | ESRS E1: Climate Change | Scope 1, 2, 3 emissions |
Climate related risks | |||
Carbon Pricing | |||
Energy mixes | |||
Transition Plan | |||
ESRS E2: Pollution | Pollution of air, soil, and water | ||
ESRS E3: Water and Marine Resources | Water Consumption | ||
Water recycled | |||
Impact on marine ecosystems | |||
ESRS E4: Biodiversity and Ecosystems | Impact on natural environment | ||
Transition plan to address diversity loss | |||
ESRS E5: Resource Use and Circular Economy | Circular material resource flows | ||
Types of waste generated | |||
Social | ESRS S1: Own Workforce | Employee Location, gender | |
Child Labor policies | |||
Alignment with the UN Guiding Principles on Business and Human Rights | |||
ESRS S2: Value Chain | Policies and processes related to upstream workers | ||
ESRS S3: Affected Communities | Company’s impact on affected communities | ||
Policies to address concerns | |||
ESRS S4: Consumers and End-Users | Company’s impact on end users | ||
Policies to address concerns | |||
Governance | ESRS G1: Business Conduct | Qualitative and Quantitative disclosures |
3. Who needs to report?
The CSRD applies to a broad range of companies, including all large companies and listed companies in the EU, as well as non-EU companies with significant operations in the EU. Specifically, it targets companies that meet at least two of the following criteria:
More than 250 employees
A net turnover exceeding €50 million
Total assets exceeding €25 million
If your company meets any two of these requirements, you are captured by CSRD and will need to report in line with it.
4. When does it come into force?
The CSRD will be implemented in phases:
Large Companies and Parent Companies of Large Groups (with over 500 employees)
Effective Date: Financial years beginning on or after 1 January 2024: these companies, previously subject to the NFRD, will transition to CSRD compliance.
Reporting Requirement: Their first CSRD-compliant sustainability report is due in 2025, covering the 2024 financial year.
Large Companies Meeting Two of Three Criteria: Over 250 employees, €50 million in turnover, or €25 million in total assets
Effective Date: Financial years starting on or after 1 January 2025: these companies will commence reporting under CSRD.
Reporting Requirement: The initial report is due in 2026, covering the 2025 financial year.
Listed Small and Medium-sized Enterprises (SMEs), Small and Non-complex Credit Institutions, and Captive Insurance Undertakings
Effective Date: Financial years beginning on or after 1 January 2026: these entities will start their CSRD reporting.
Reporting Requirement: Their first report is due in 2027, covering the 2026 financial year.
Non-EU Companies with Significant Operations in the EU (net turnover exceeding €150 million in the EU and at least one subsidiary or branch in the EU that meets specific thresholds)
Effective Date: Financial years starting on or after 1 January 2028: these companies must adhere to CSRD requirements.
Reporting Requirement: The first report is due in 2029, covering the 2028 financial year.
5. What happens if I don’t report?
CSRD is mandatory. Non-compliance can result in significant penalties enforced by national regulatory bodies, including potential fines, reputational damage, and scrutiny from stakeholders.
The enforcement will be overseen by the European Securities and Markets Authority (ESMA). Examples of penalties may include:
Fines based on company revenue.
Public warnings or sanctions.
ESMA has previously issued fines for non-compliance with financial reporting standards. For instance, in 2021, ESMA fined the ratings agency S&P €1.1 million for failing to comply with disclosure requirements.
6. Is CSRD the same as ISSB?
No, the CSRD is not the same as the International Sustainability Standards Board (ISSB).
While the ISSB develops global sustainability disclosure standards, the CSRD is specifically an EU regulation that mandates reporting requirements within the European context.
The ISSB focuses on a global approach to sustainability disclosures, while the CSRD is tailored to European companies, emphasizing double materiality—considering both the impact of sustainability issues on the company and the company's impact on sustainability. In contrast, the ISSB primarily focuses on single materiality, which centers on information important to investors.
At the moment, CSRD is mandatory while ISSB is not yet mandatory in many jurisdictions - although this is changing as more and more countries make ISSB mandatory.
7. Is CSRD the same as CSDDD?
No, the CSRD is not the same as the Corporate Sustainability Due Diligence Directive (CSDDD).
The CSRD focuses on sustainability reporting, while the CSDDD focuses on the responsibility of companies to uphold human rights and environmental standards in their supply chains, requiring companies to conduct due diligence on this.
In terms of scope, CSRD targets large companies and listed entities, while CSDDD applies to a broader range of companies engaged in significant supply chain operations, requiring due diligence on human rights and environmental impacts.
8. Has anyone started reporting yet? Any examples I can look at?
Some companies have begun reporting under the existing NFRD, which the CSRD builds upon. Notable examples include large corporations like Nestlé, which has produced a comprehensive sustainability report that align with CSRD expectations (not a legal opinion).
The Nestlé 2022 Sustainability Report is available here.
9. How should I prepare to start reporting?
To prepare for CSRD reporting, companies should:
Assign internal responsibility for reporting.
Ensure finance and sustainability teams are aligned.
Consider appointing an executive sponsor for governance.
Research external providers for support as needed.
Familiarize themselves with the ESRS.
Assess current reporting practices and identify gaps.
Establish data collection processes for relevant ESG metrics.
Check the reporting deadline and work backward.
Look at examples of companies already disclosing.
10. How long will reporting take?
The time required for reporting can vary based on the size and complexity of the organization. Companies should start the process as soon as possible, as it may take up to a year, especially for the first reporting cycle. It’s important to get started early.
11. Does this apply to non-EU companies?
Yes, the CSRD applies to non-EU companies that generate a net turnover of more than €150 million in the EU and have a significant presence in the market. Companies should verify if they fall under this requirement.
12. Who is policing this?
The enforcement of the CSRD will be carried out by national authorities in EU member states, with oversight from ESMA to ensure consistency and compliance.
In terms of areas of focus, ESMA has indicated that it will focus on ensuring compliance with the double materiality principle and sustainability statement requirements. They are particularly interested in how companies report the impacts of their activities on the environment and society, and they may conduct audits and reviews of sustainability reports.
13. Is it going to change?
While the CSRD framework is set, amendments may occur. The EU has done this with several other sustainability-focused regulations, sometimes before the regulations have even been implemented. Companies should be prepared for potential changes and stay updated on the latest developments.