Corporate Sustainability Reporting Directive (CSRD): A Quick Guide

The CSRD marks a watershed moment for corporate sustainability with far-reaching implications for how companies assess their own climate impact, as well as for the future of sustainability reporting in both Europe and globally. Organizations will need to devote significant time and resources to prepare for implementation of the directive within a short timeframe.

We’ve created a quick guide to help industry enterprises understand the most important points of the CSRD and how they can best prepare for it.

The Corporate Sustainability Reporting Directive (CSRD) is an amendment and extension of the current Non Financial Reporting Directive (NFRD), under which large companies, banks and insurance companies with more than 500 employees are required to disclose information on their environmental and social impacts. The European Commission adopted a proposal for a CSRD in April 2021, with the aim of improving the quality of sustainability reporting and increasing transparency on the non-financial performance of companies for external stakeholders.

As the climate crisis has progressed, the EU is increasing its efforts to drive forward its transition to a sustainable economy. The CSRD strengthens the existing rules on non-financial reporting introduced in the Accounting Directive by the 2014 non-financial reporting directive (NFRD). The new regulations under the CSRD will bring important changes regarding scope and reporting requirements.

The scope of companies affected by the regulations will significantly be extended to apply to: 

• All large companies, that is companies fulfilling 2 out of the three following criteria:
  - Revenues surpassing EUR 40 million per year
  - Total assets over EUR 20 million
  - More than 250 employees
• All companies listed on EU-regulated markets (except listed micro-enterprises)

This nearly quadruples the number of companies required to publish reports on the environmental and social impacts of their operations from 11,700 to about 50,000. 

The CSRD will include more comprehensive sustainability reporting requirements and significantly expand the number of EU and non-EU companies subject to the EU sustainability reporting framework. Enterprises will provide detailed environmental and climate change information, but will now also be held accountable for reporting on a wider range of topics such as environmental rights, social rights, human rights, and governance factors.

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

• Publicly listed companies 
• EU companies with over 250 employees and a net turnover of EUR 40 million
• Non-EU companies with at least one subsidiary in the EU and a net turnover of more than EUR 150 million

Reporting requirements for the CSRD will be fully phased in before the end of the decade as follows:

reporting in 2025 on the financial year 2024 for companies already subject to the NFRD

• reporting in 2026 on the financial year 2025 for large companies that are not currently subject to the NFRD
• reporting in 2027 on the financial year 2026 for listed SMEs (except micro undertakings)
• reporting in 2029 on the financial year 2028 for 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 comply with the CSRD, companies will need to prepare a non-financial statement that includes information on their sustainability policies, risks, and results. This statement must be auditable by an independent third-party and be included in the company’s annual financial report.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.

Companies will need to compile their ESG disclosure information in accordance with the CSRD with guidance from the European Reporting Sustainability Reporting Standards (ESRS). During the drafting process, the ESRS referenced various ESG reporting frameworks and standards, including CDP, GRI, SASB, and others.

The ESRS will incorporate both universal and industry-specific standards, like many other comparable frameworks. The first set of ESRS reporting standards is expected to be adopted by June 30, 2023, and publication of ESRS sector-specific standards is anticipated by June 30, 2024.

While the full extent of sanctions is not known, as penalties are defined at a member state’s discretion, organizations found to be in violation of the CSRD can expect serious administrative sanctions, with possible penalties including significant fines.

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.

Other consequences of CSRD non-compliance could also include damage to brand reputation, a loss of investor and stakeholder confidence, as well as legal action taken by non-governmental organizations.

While some details are in development, it is clear that implementing CSRD it will require significant resources, and most crucial for multi-national enterprises, will overlap in scope and diverge in content from region to region. Regardless of size, companies should prepare for CSRD by:

1. ensuring that key stakeholders across your company are familiar with CSRD sustainability disclosure requirements; 
2. staying up-to-date on EFRAG announcements and ESRS guidance for CSRD;
3. assessing how your company identifies and gathers sustainability-related information;
4. setting targets and KPIs with planned periods to evaluate progress and relevance;
5. utilizing the right tools to help you quantify and report your relevant sustainability information.

carbmee EIS™ Carbon Management solution can help you to plan for success and prepare for the CSRD. Our platform provides you with everything you need to understand your baseline, set targets for emission reduction, develop transparent benchmarks, and report your progress through:

• centralized and automated data collection from your existing ERP system;
• industry-specific databases of emission factors that guarantees the highest accuracy;
• hotspot-assisted target setting, benchmarking, and gap analysis so you have the best data to create compliant reports;
• real-time and impact-oriented insights to help you deliver on targets in good time.

Download our CSRD guide for more information.

To learn more about EIS Carbon Management and what carbmee can do for your company, get in touch with one of our industry experts.