CSR, ESG - and now CSRD. Sustainability has become part of the agenda for companies located in European Union member states. With the new EU Directive on Sustainability Reporting, many organizations face legislation that will fundamentally impact their sustainability work.
The directive will affect the entire organizational value chain for upstream and downstream activities, which is why it is essential to get the job done correctly.
We will examine the directive and explain its purpose and the EU's ambitions. At the same time, we will look into which companies will have to ensure compliance with CSRD and what they will need to report upon.
What is the CSRD?
CSRD stands for Corporate Sustainability Reporting Directive and is a new EU directive that changes and tightens companies' sustainability reporting requirements.
The new EU measure aims to harmonize reporting and increase transparency in the area of sustainability so that investors, suppliers, and customers can more easily decode an organization's sustainability performance. At the same time, the CSRD will mitigate some of the shortcomings of the NFRD that were previously in place.
The ambition of the CSRD is that sustainability reporting will eventually be of the same quality as financial reporting.
Who is Covered by CSRD?
Initially, the CSRD will cover around 49,000 companies across EU member states. This is far more than its predecessor, the NFRD, which only covers about 11,700 companies.
The directive will affect more companies because the new sustainability reporting standards cover large and listed companies and the SME segment of companies in the EU.
Smaller companies can also be affected by the tightened sustainability reporting requirements, as suppliers may be asked to document and make any sustainable actions visible.
When Does the CSRD Enter Into Force?
For large and listed companies, the CSRD is expected to come into force in the financial year beginning 1 January 2024.
The SME segment can expect a more extended period before start-up. It is expected that the CSRD will only cover them from 2026. However, it is not unlikely that both SMEs and other companies will be affected by the new legal and reporting requirements from 2024 - simply because it will be necessary for the large companies to tighten the requirements for their subcontractors to be able to report within the law themselves.
What to Report on?
As a starting point, the requirements of the CSRD will focus on three main areas - namely:
- Environmental factors - including climate change adaptation and mitigation, resource use, circular economy, pollution, biodiversity, etc.
- Social factors - including equal opportunities and rights, good working conditions, human rights, etc.
- Governance - including management and supervisory bodies, business ethics, corporate culture, political commitment, internal controls, risk management systems, etc.
For each of the above areas, companies must make a wide range of information available to all stakeholders. This includes information on the business model, strategy, sustainability policies, negative impacts on sustainability, and the role of management in sustainability.
The CSRD will also be closely linked to other EU-related initiatives - including the Disclosure Regulation and the Taxonomy Regulation, as well as the forthcoming Due Diligence Directive CSDDD.