Rewind the time to 2015, when all the UN Member States decided to adopt the SDGs as a part of the 2030 Agenda for Sustainable Development. Needless to say, it is undeniable that the SDGs in the 2030 Agenda is a step towards a more sustainable society and sustainable development. It would be a shame if the work was not completed by not being properly reported and measured.
The Corporate Sustainability Reporting Directive (CSRD) is a new proposal by the EU concerning sustainability reporting. The idea of CSRD is to amend, strengthen and extend the scope of the current Non Financial Reporting Directive (NFRD). Why? Well, according to the European Commission the current reporting process by companies do, on the one hand, not fulfill the users’ needs, namely the investors, civil society and others. The crucial part is users who need information from some companies that do not even report.
Moreover, there are also issues where companies do report, but the information is not enough, comparable, reliable, relevant and is difficult to access. On several occasions the current reports exclude information that investors and other stakeholders consider as significant. On the other hand, companies are struggling to report since the current requirements are unclear.(1)
Therefore, the CSRD is the most important Directive for companies in their sustainability journey. There are many questions about the CRSD, and I understand that it starts with ‘what is the CSRD and does my company have to comply with the CSRD?’ So, this post will enlighten you about the CSRD and provide you with a summary of the essential facts.
What is the CSRD?
As the name indicates, the CSRD is an EU Directive regarding the reporting process of companies’ sustainability journey. It is a part of the ‘Sustainable Finance Package’ that the European Commission adopted on 21 April 2021. The CSRD entails rules for companies to routinely post reports on environmental and social impacts of their activities. It extends the scope and reporting requirements laid down in the NFRD.
The purpose of the CSRD is to deal with the weaknesses in the current reporting process. As mentioned before, the current issues are that either companies do not report at all, or they do report but the information provided is in one way or another deficient. Also, companies find it hard to report since the current requirements are vague. Therefore, the CSRD aims at both guaranteeing that companies publish comparable, relevant and reliable information about their sustainability actions, and at the same time, clarify what the companies must report about. This is made through establishing this common reporting framework where all companies have the same clear rules to follow.
The CSRD is also a good mechanism to ensure that all companies provide reliable and comparable information in their sustainability reports in order to increase investments on sustainable technologies and companies.
Does your company have to comply with the CSRD?
Compared with NFRD, the CSRD contains different EU sustainability reporting requirements and it is extended to all large companies and all companies listed on regulated markets (excluding listed micro-enterprises).(2) The previous NFRD covered about 11 000 companies while the CSRD is to be covering nearly 50 000 companies. So, does your company have to comply with the CSRD? Well, the following companies are covered:
All large companies that fulfill at least 2 out of 3 criteria:
250 or more employees and/or
40 million EUR in net turnover and/or
20 million EUR in total assets
All listed companies on EU regulated markets. This covers companies that are not established in the EU but are listed on EU regulated markets.
Small and Medium Enterprises (SMEs) listed on EU regulated markets from the financial year 2026. SMEs will have special conditions in the sense of having separate, less strict standards compared with large companies. Also, SMEs get 3+ years to comply, meaning that compliance is not yet required. However, a good idea is to start reporting in accordance with the CSRD since it will be necessary to prepare for the transition.
An important note here is that this does not apply to listed micro-companies that have less than 10 employees or below 20 million EUR in turnover. These companies are the only companies that the CSRD does not cover.
What does your company need to do to comply with the CSRD?
As just discussed, all companies except micro-companies with less than 10 employees or below 20 million EUR in turnover must comply with the CSRD. So, if your company is not a micro-company, it is covered by the CSRD. Then what? What is the next step?
In accordance with the CSRD, your company must routinely publish reports on environmental and social impacts of their activities in accordance with EU sustainability reporting standards.(3) To clearly identify what type of information your company must disclose to comply with the CSRD, a comparison with the NFRD is helpful.
Under the NFRD, large companies must publish information concerning:
Environmental protection,
Social responsibility and treatment of employees,
Respect for human rights,
Anti-corruption and bribery, and
Diversity on company boards (age, gender, educational and professional background).
The CSRD expands the current requirements and adds further requirements on:
Double materiality concept: Sustainability risk (including climate change) affecting the company and companies’ impact on society and environment,
The process to select material topics for stakeholders,
More forward-looking information (including targets and progress),
Disclose information relating to intangibles (social, human, and intellectual capital),
Reporting in line with Sustainable Finance Disclose Regulation (SFDR) and the EU Taxonomy Regulation.(4)
What can be concluded is that there are three main updates in the new CSRD:
more companies will be subject to the requirements for sustainability reporting,
requirements for third party review and,
common standards. There is no doubt that the CSRD reflects stronger, more secure and reliable rules for companies. In this way, injustices and uncertainties can hopefully be avoided.
Looking from a global perspective I think that more companies must be covered, and stricter requirements must be implemented so the SDGs can be fulfilled. Once again, the importance of the CSRD in companies’ sustainability journey is reflected. We cannot forget that our environment and climate will not rescue itself.
The CSRD’s key dates to keep in mind
In the present, the CSRD is published for consultation until 8 August 2022. By November 2022 the first set of drafts is expected to be presented to the Commission.(5) Assuming that the proposal will be approved, the following dates should be kept in mind:
A final note is that after all of this, the CSRD will be reviewed. It can be good to know that it will be evaluated when there is enough evidence to collect concerning the impacts of the initiative. We are speaking about at least 3 years of data. Until then, we have to all work together for sustainability and in the journey of achieving sustainable development. Since your company will know how to act in accordance with the CSRD after this post, you can gladly relax and continue in your sustainability journey together with us, SDG Monitor.
Sources:
(1) Proposal for a Directive of the European Parliament and of the Council, amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting [2021] 2021/0104 (COD)