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:
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.
CSRD brings several significant changes compared to the NFRD:
CSRD will be rolled out in phases from 2024 through 2028, with larger, publicly traded organizations complying first.
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 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.
The CSRD introduces 13 draft ESRS categories, covering four broad areas:
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).
Get Informed: Start by assessing the double materiality of your operations and understanding the CSRD’s provisions, reporting obligations, and disclosure requirements
Develop Capacity: Invest 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
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.