CSRD 101: EU’s New Sustainability Reporting Directive Explained



Aakriti Mendiratta

Business Analyst - Research & Strategy, Climate Connect Digital


Aakriti Mendiratta

Business Analyst - Research & Strategy, Climate Connect Digital


The CSRD, introduced as part of the European Green Deal, marks a seismic shift in sustainability reporting in the EU. With its ambitious goals and broad scope, the CSRD will replace the existing reporting framework and expand its reach to encompass 50,000 companies (EU and non-EU), up from the initial 11,700.

Let’s dive into what you need to know about this directive:


Understanding the Transition

Replacing the Non-Financial Reporting Directive (NFRD): The CSRD replaces the NFRD, a 2014 directive that applied to around 11,700 organizations in the EU. While NFRD was primarily focused on large companies, CSRD extends its reach to a significantly larger number of companies across all sectors.


Key Differences Between CSRD and NFRD

CSRD brings several significant changes compared to the NFRD:

  1. Wider Applicability: CSRD covers over 49,000 organizations, while NFRD was applicable to only 11,700 companies
  2. Third-party Assurance: Unlike NFRD, CSRD mandates third-party assurance and external auditing of sustainability information
  3. Integration: CSRD requires sustainability reporting to be included in a management report, while NFRD was part of an annual report
  4. Broader Reporting Scope: CSRD is holistic and expands reporting requirements to include targets, risks, strategy and opportunities


Who does CSRD apply to?

  • All (listed or non-listed) large EU companies (two of three criteria met):
    • > 250 employees and/or
    • > €40M Turnover and/or
    • > €20M Total Assets
  • Companies listed on the EU-regulated markets
  • Large non-EU entities with a turnover of >€150 million, and a large branch or subsidiary in the region


Timeline of Implementation

CSRD will be rolled out in phases from 2024 through 2028, with larger, publicly traded organizations complying first.

  • FY2024: Large listed EU companies
  • FY2025: Large non-listed EU companies
  • FY2026: Listed EU and Non-EU SMEs
  • FY2028: Non-European companies with European revenue exceeding €150 million, having subsidiaries in EU


Penalties for Non-Compliance

Each member state will define penalties for infringements of the CSRD. Non-compliance can result in administrative sanctions and penalties: a public denunciation; an order to change conduct; and financial punishment.


The Role of ESRS

The European Financial Reporting Advisory Group (EFRAG) is developing the European Sustainability Reporting Standards (ESRS), which will provide guidelines for sustainability reporting under the CSRD framework.


Key Reporting Categories

The CSRD introduces 13 draft ESRS categories, covering four broad areas:

  1. Cross-cutting: General principles, strategy, governance, and materiality assessment.
  2. Environment: Climate change, pollution, water resources, biodiversity, and circular economy
  3. Social: Workforce, value chain workers, affected communities, consumers, and end-users.
  4. Governance: Governance, risk management, internal control, and business conduct


Double Materiality Assessment Lens

It requires companies to identify both their impacts on people and the environment (impact materiality) as well as the sustainability matters that financially impact the entity (financial materiality).


Next Steps for Businesses

Get Informed: Start by assessing the double materiality of your operations and understanding the CSRD’s provisions, reporting obligations, and disclosure requirements

Develop CapacityInvest in building internal capacity and expertise in sustainability reporting and understand how CSRD goes beyond your current reporting capacity

Enhance Data: Establish robust data collection and management systems.

Align with Standards: Review and align reporting practices with recognized sustainability frameworks such as TCFD

Assurance: Understand the assurance and audit requirements and engage third-party assurance providers as per your requirements

Measure your GHG emissions:  Invest in measuring your baseline GHG emissions- in line with GHG Protocol, which can prove crucial in setting other environmental KPIs

Start Now: Begin preparations early to ensure a smooth transition


In Conclusion

The introduction of CSRD heralds a transformative phase in sustainability reporting within the EU and beyond. It’s imperative for enterprises, both within and outside the EU, to proactively equip themselves. The clock is ticking, with phased implementations on the horizon; thus, immediate, informed action is the need of the hour.

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