26.11.2024
The Corporate Sustainability Reporting Directive (CSRD) represents a landmark shift in European legislation, aimed at enhancing the transparency, reliability, and standardization of sustainability reporting across various sectors. This blog post explores the evolution and significance of the CSRD, its specific requirements, the entities it impacts, and how its implementation is expected to transform corporate reporting.
The CSRD builds on the foundation of the Non-Financial Reporting Directive (NFRD), which was adopted in 2014. While the NFRD marked an initial step toward structured sustainability disclosure and required large companies to disclose non-financial information related to environmental, social, and employee matters, human rights, and the fight against corruption and bribery, it faced criticism for its lack of specificity and comparability. Stakeholders often highlighted inconsistencies across reports and gaps in the depth of disclosed information.
To address these challenges, the European Commission proposed the introduction of the CSRD in April 2021, with the final directive being adopted in December 2022. Replacing the NFRD, the CSRD mandates more robust and harmonized reporting, underpinned by the newly developed European Sustainability Reporting Standards (ESRS). These advancements ensure the availability of relevant and comparable data for investors, policymakers, and other stakeholders, promoting accountability and fostering sustainable development aligned with the European Green Deal and global frameworks like the Paris Agreement and the SDGs.
The CSRD establishes comprehensive reporting requirements, designed to ensure consistency and reliability in sustainability disclosures:
Expanded Scope of ESG Reporting: Companies must provide more extensive information on environmental, social, and governance (ESG) topics. This includes data on CO2 emissions, water consumption, biodiversity, social issues, corporate governance, etc.
Harmonized Standards: Reporting must comply with uniform European standards to ensure comparability across companies and industries. These standards are being developed by the European Financial Reporting Advisory Group (EFRAG).
Audit Obligations: Sustainability reports must be verified by independent auditors to ensure the reliability of the disclosed information.
Digital Reporting: Companies are required to publish their reports in a digital, machine-readable format to facilitate access and data analysis.
The CSRD significantly broadens the range of EU entities subject to mandatory sustainability reporting:
Large companies: All large companies, regardless of whether they are publicly listed or not. A company is defined as large if it meets at least two of the following three criteria:
More than 250 employees
A balance sheet total exceeding 25 million euros
Net revenue exceeding 50 million euros
Listed companies: All companies whose securities are traded on regulated EU markets. Small and medium-sized enterprises (SMEs), however, benefit from longer transition periods.
Non-European companies: Non-European companies that operate in the EU and exceed certain thresholds must also prepare reports in accordance with the CSRD.
The introduction of the CSRD marks the beginning of a major transformation in corporate reporting across Europe. The directive will be implemented in phases, with the first companies required to publish reports for the fiscal year 2024. For small and medium-sized enterprises (SMEs), transitional arrangements will apply initially. However, the number of companies affected will gradually increase in the following years to ensure all relevant entities meet the new regulation.
The CSRD will fundamentally change how companies report on their sustainability performance. It will not only increase transparency and accountability but also encourage companies to develop and implement more sustainable practices. In the long term, this could contribute to a more sustainable economy and society by enabling investors, consumers, and other stakeholders to make informed decisions based on reliable and comparable information.
The CSRD is a crucial step toward improving sustainability reporting in Europe. By introducing stricter and more standardized requirements, it will enhance the transparency and comparability of reports and encourage companies to adopt more sustainable business practices. Companies affected by the CSRD should begin preparing early to meet the deadlines and capitalize on the benefits of improved sustainability reporting. If your company requires support in the implementation of the CSRD and the preparation of the report, feel free to get in touch with CoPLIANCE for a safe and effective approach to the new regulation.
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