CSRD: Master Complex Reporting Requirements

The Corporate Sustainability Reporting Directive (CSRD) is a European Union regulation that amends and extends the previous Non-Financial Reporting Directive (NFRD). Its primary goal is to enhance the quality and transparency of sustainability information disclosed by companies, making them more accountable for their environmental and social impacts.
CSRD standardizes sustainability reporting, ensuring that investors, consumers, and other stakeholders have access to reliable and comparable data. By elevating sustainability information to the same level as financial information, the EU CSRD aims to support the transition to a sustainable global economy.

The CSRD strengthens the rules established by the NFRD (Non-Financial Reporting Directive) by expanding both the scope of companies affected and the depth of the reporting requirements. This change drives the EU's transition to a sustainable economy by holding more organizations accountable for their non-financial performance.

The most significant change is the expanded scope, which increases the number of affected companies from 11,700 to nearly 50,000. The new criteria apply to:

1. All large companies that meet at least two of the following three criteria:

• Revenues surpassing €40 million per year
• Total assets over €20 million
• More than 250 employees

2. All companies listed on EU-regulated markets, with the exception of listed micro-enterprises.

The CSRD requirements apply to a broad range of EU and non-EU companies, ensuring a wide net of accountability. The directive is mandatory for companies that meet the specific in-scope criteria, making CSRD compliance a critical focus for businesses operating within or trading with the EU.

The CSRD is mandatory for companies that meet in-scope criteria, which include:

• Publicly listed companies on EU-regulated markets
• EU-based companies with over 250 employees and a net turnover of €40 million
• Non-EU companies with at least one subsidiary in the EU and a net turnover of more than €150 million within the EU.

Reporting requirements for the CSRD will be phased in over several years to allow companies time to prepare. The implementation is staggered based on company size and existing obligations.

• Reporting in 2025 (on FY 2024): Companies already subject to the NFRD.
• Reporting in 2026 (on FY 2025): Large companies not currently subject to the NFRD.
• Reporting in 2027 (on FY 2026): Listed SMEs (small and medium-sized enterprises), except micro undertakings.
• Reporting in 2029 (on FY 2028): Third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.

To ensure CSRD compliance, companies must prepare an auditable non-financial statement within their annual report. This statement must cover sustainability policies, risks, and performance outcomes, providing a holistic view of the company's impact and strategy.

The specific content of the statement will vary depending on the size and sector of the company but could include policies and performance details, such as: 

• a brief description of the company’s business model, strategy and sustainability risks and opportunities; 
• implementation plans as they relate to the transition to a sustainable economy, measures taken to achieve climate neutrality by 2050 ( in line with the Paris Agreement), and exposure to coal, oil and gas-related activities;
• double materiality, i.e. both the sustainability matters that affect the company and the impact of the company on the environment, market, and people; 
• greenhouse gas emission reduction targets; 
• policies in relation to sustainability (including incentive schemes); 
• and the processes the undertaking used for due diligence in relation to sustainability issues, as well as the current and future negative effects of the business' operations and value chain.

All companies subject to the directive must prepare their CSRD report using the European Sustainability Reporting Standards (ESRS). These standards were developed to create a common framework for sustainability reporting, ensuring all disclosures are consistent, comparable, and reliable across the EU.

The ESRS development process referenced globally recognized frameworks like CDP, GRI, and SASB. The standards include both universal requirements applicable to all companies and sector-specific standards to address unique industry impacts.

While sanctions are defined by individual EU member states, companies that fail to comply with the CSRD can expect significant penalties. These consequences go beyond fines and can impact a company's financial stability and market reputation.

Financial Penalties: In the case of NFRD implementation by member states, fines in Portugal ranged from €50 to €1,500, while in Germany companies are fined up to either €10M, 5% of the annual turnover, or twice the amount of the profits gained/losses avoided because of the breach.

Reputational and Legal Risks: Non-compliance can lead to severe brand damage, loss of investor and stakeholder confidence, and potential legal action from non-governmental organizations.

Implementing the CSRD will require significant time and resources. Regardless of size, companies should begin preparing now to ensure a smooth transition and avoid penalties.

Step 1: Familiarize stakeholders

Ensure that key decision-makers across your company understand the CSRD reporting requirements and their strategic implications.

Step 2: Monitor updates

Stay informed about announcements from EFRAG (European Financial Reporting Advisory Group) and official ESRS guidance.

Step 3: Assess data infrastructure

Evaluate your company's current processes for identifying, gathering, and managing sustainability-related information.

Step 4: Set targets and KPIs

Establish clear sustainability targets and key performance indicators (KPIs) to track progress and relevance over time.

Step 5: Utilize the right tools

Implement specialized software to accurately quantify, manage, and report your sustainability data in a compliant format. Here’s where Carbmee comes into play. 

Preparing for the CSRD is complex, but the right technology can streamline the entire process. The carbmee EIS™ carbon management solution empowers your organization to plan for success and achieve compliance with confidence. 

Centralized & Automated Data Collection: Integrate directly with your existing ERP system to automate data collection, eliminating manual errors and saving time.

Guaranteed Accuracy: Utilize industry-specific databases of emission factors to ensure the highest level of accuracy in your carbon accounting.

Strategic Target Setting: Leverage hotspot analysis, benchmarking, and gap analysis to create data-driven strategies for compliant CSRD reporting and decarbonization.

Actionable, Real-Time Insights: Gain access to impact-oriented dashboards that help you track progress and deliver on your sustainability targets in good time.

Take the first step towards CSRD compliance and decarbonization today. Get in touch with our experts!

What Is the Main Goal of the CSRD?

The primary goal of the CSRD is to make corporate sustainability reporting more consistent, comparable, and reliable across the European Union. By standardizing disclosures, it aims to provide stakeholders with the information needed to make sustainable investment decisions and hold companies accountable for their environmental and social impacts.

What Does "Double Materiality" Mean in the CSRD Context?

Double materiality is a core concept of the CSRD. It requires companies to report on sustainability from two perspectives: "financial materiality" (how sustainability issues affect the company's performance) and "impact materiality" (how the company's operations impact the environment and society).

Are Non-EU Companies Affected by the CSRD?

Yes, certain non-EU companies are affected. A non-EU parent company must comply if it generates a net turnover of more than €150 million in the EU and has at least one large or listed subsidiary or a significant branch within the EU.

What Are the European Sustainability Reporting Standards (ESRS)?

The European Sustainability Reporting Standards (ESRS) are a set of mandatory reporting rules that all companies subject to the CSRD must follow. They specify the exact information that needs to be disclosed and the format for reporting, ensuring all sustainability reports are standardized and comparable.