The Corporate Sustainability Reporting Directive (CSRD), established as Directive (EU) 2022/2464, represents a cornerstone of the EU’s vision to enhance corporate accountability and transparency in sustainability reporting. Set to apply to a broader range of companies than its predecessor (the Non-Financial Reporting Directive, or NFRD), the CSRD mandates clear, consistent, and comparable disclosures on environmental, social, and governance (ESG) metrics from 2025 onwards. Here’s an overview of what this directive entails and how it impacts EU-based and international companies.

What is the CSRD?

As part of the EU Green Deal, the CSRD enhances the quality and scope of sustainability information companies provide, increasing transparency for stakeholders and aligning corporate operations with the EU’s sustainable finance agenda. This directive aims to channel investments into sustainable businesses, focusing on companies’ impact on people, the environment, and overall sustainability efforts.

Who is Required to Report?

The CSRD applies to:

• All large companies meeting at least two of these criteria: a €25 million balance sheet total, €50 million net turnover, and an average of 250 employees.
• EU-listed companies on regulated markets, including small and medium-sized enterprises (SMEs), excluding micro-enterprises.
• Non-EU companies with substantial EU business operations, specifically those with a net sales threshold over €150 million in the EU and at least one large EU subsidiary, an EU-listed entity, or an EU branch.

Key Reporting Obligations and Timeline

The directive mandates sustainability reporting on the financial year 2025 for large EU and non-EU listed companies with over 500 employees. For smaller companies and specific subsidiaries, the reporting timeline extends to 2026 and beyond, offering a phased approach to allow companies time to adjust to the new standards.

Reporting Standards Under CSRD

The CSRD requires companies to disclose comprehensive sustainability practices, using the European Sustainability Reporting Standards (ESRS). Reports should detail a company’s environmental impact, including carbon emissions, resource dependencies, and social and governance factors like equal opportunities, anti-corruption practices, and stakeholder engagement. Reporting must cover both quantitative and qualitative KPIs, ensuring a full value chain perspective.

Role of Auditors and Assurance

In a significant shift towards accountability, the CSRD mandates that sustainability disclosures undergo external audit and verification, heightening the credibility of the data reported. This shift positions auditors as key players in ensuring compliance with the directive’s transparency objectives.

Penalties and Compliance

Non-compliance with the CSRD could result in penalties, as set out by individual EU Member States’ national laws, underscoring the need for businesses to adhere to the directive. Companies are urged to develop robust ESG data management systems to minimize compliance risks.

Integration with Other EU Regulations

The CSRD aligns closely with the EU Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR), creating a cohesive framework for ESG reporting across the EU. This integration supports the EU’s broader goal of steering investments towards sustainable businesses.