EU Corporate Sustainability Reporting Directive (CSRD) Business Implications
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The CSRD (Corporate Sustainability Reporting Directive) in the EU reforms and significantly expands the reporting obligations of companies. It extends the reporting requirements and makes it compulsory for big to small and medium-sized enterprises based on a harmonized reporting standard.
The extended scope will mean that from 2024, more than 50,000 European companies will have to disclose detailed ESG (Environmental, Social, and Corporate Governance) information. The EU Council announced the approval of the Corporate Sustainability Reporting Directive on the 28th of November, 2022.
This new directive will have implications beyond the EU. For non-European companies, the requirement to provide a sustainability report applies to all companies generating a net turnover of €150 million in the EU and with at least one subsidiary or branch. These companies must report their ESG impacts, namely environmental, social and governance impacts, as defined in this directive. Not to mention, many companies have existing reporting obligations aside from the CSRD, so it’s important to map these requirements against existing and/or future reporting mechanisms and identify any reporting gaps that may need to be addressed in upcoming disclosures.
Read more on the business implications below, with this article originally published here from our Inogen Alliance Associate in Hungary, denxpert, along with an infographic on how to prepare for CSRD.
What is CSRD?
The CSRD will replace the Non-Financial Reporting Directive (NFRD) after 2024. Under the current working version of the CSRD, a significantly larger number of companies in the EU will be required to report on their non-financial sustainability performance compared to the previous NFRD. Typical sustainability issues to be reported include environmental rights, social rights, human rights, and governance factors.
The CSRD proposal:
- extends the scope to all large companies and all companies listed on regulated markets (for example banks and insurance companies)
- requires the audit (assurance) of reported information
- introduces more detailed reporting requirements according to EU sustainability reporting standards
The European Commission’s proposal for a Corporate Sustainability Reporting Directive (CSRD) forces the adoption of EU sustainability reporting standards. The European Financial Reporting Advisory Group (EFRAG) will be responsible for establishing these European standards, following technical advice from several European agencies. The standards will be tailored to EU policies while building on and contributing to international standardization initiatives.
Who is affected by the CSRD?
The CSRD will apply to all large companies and entities with securities listed on regulated markets in the EU, except micro-enterprises. Large companies are entities that exceed the thresholds for at least two of the following three criteria: 1) balance sheet total: €20 million, 2) net turnover: €40 million, 3) the average number of employees in the financial year: 250.
These companies are also responsible for assessing the information at the level of their subsidiaries.
Large companies are not the only ones required to publish their sustainability reports. The EU proposes that listed small and medium-sized companies could also be affected, but they will be subject to simpler rules than large companies. An opt-out will be possible for SMEs during a transitional period, meaning that they will be exempted from the application of the directive until 2028.
How can I prepare for CSRD compliance?
Different approaches to reporting can be taken depending on whether a company is preparing its first sustainability report or has already communicated its non-financial performance.
If the company is likely subject to the CSRD, it is worthwhile to carry out a gap analysis to show its current state of compliance. The next step is to draw up a plan to address the gaps so that the report is fully compliant with the CSRD by the deadline.
The first steps can be taken based on the information available. A materiality analysis needs to be carried out, stakeholders need to be mapped, channels to learn about sustainability issues need to be developed, corporate governance structures need to be designed to meet expectations, and data collection methods need to be developed. Some companies may have other reporting obligations besides the CSRD, which need to be identified and a timetable set to meet these by the deadline.
Companies that have already reported on their non-financial performance are at an advantage, especially if they have prepared their reports under an international standard. However, it is also essential for these companies to review their reporting practices, considering the expected new requirements.
Continue Reading on the Inogen Alliance Blog
With the CSRD, there are varying levels of applicability and urgency to formally align depending on a variety of factors including company size, subsidiary structure, location, and revenue. So the first step is to gain a better understanding of the disclosure requirements and how they will impact your business.
