The European Commission’s Corporate Sustainability Reporting Directive (CSRD) came into force at EU level on 5th January 2023. The directive must become law in all EU member states within the following 18 months. While closely tied to financial reporting, the CSRD will focus on encouraging broader transparency, consistency and comparability across all sectors.
These updated standards also make clear that sustainability metrics are now an integral part not only of climate action efforts, but in the economic viability of companies going forward.
This article will focus only on the major need-to-knows of the CSRD, but check out our overview of standards, frameworks, and regulations for a more granular breakdown.
The CSRD replaced the Non-Financial Reporting Directive (NFRD), affecting even more companies—around 49,000—and goes beyond financial performance, encouraging more widespread corporate responsibility. Companies listed on the stock exchange, businesses exceeding €150 turnover million in the EU, and large companies are affected. Large companies are those who meet two of the following three criteria:
CSRD regulations require what’s known as double materiality. Double materiality encompasses financial materiality and impact materiality—i.e. reporting not only on how activities affect the company’s financial position, but also taking into account their broader impact on people and the planet.
Initially, companies will be required to have limited assurance of their sustainability data. This level of information review still requires an auditor, but it is not as in-depth as financial reporting. Reasonable assurance will be a future requirement.
CSRD is being rolled out in phases. For large public interest companies previously covered under NFRD, the first reporting year began in January 2024, with reports due in 2025. Reporting for other large companies begins in 2025, for small and medium-sized enterprises (SMEs) in 2026, and non-EU companies with substantial business in the EU in 2028.
Companies must submit their sustainability reports in a digital, machine-readable format. Financial and sustainability information will have to be reported at the same time and included in a transparency report. Companies will also need to digitally tag sustainability information for submission to the European single point of access database.
While you may still have some time before CSRD comes into force for your company, it’s advisable to be proactive. Building greenhouse gas emissions accounting into company operations now drives internal and external transparency and further development. You will not only be ready to meet reporting standards when the new regulations come in, but you’ll have already made an impactful change to the way your organization understands and meets the challenge of the climate crisis.
The environmental impact of the corporate sector is enormous. There’s still a lack of good information where patchy reporting has left out major puzzle pieces. The CSRD is an exciting step towards understanding the broader picture, giving companies and governments the insights to take action where it is most needed. Companies can be agile and make swift changes in ways that large governance bodies simply cannot. It’s up to each and every company to hold themselves accountable before time runs out.
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