Unpacking the Corporate Sustainability Reporting Directive (CSRD) and Its Implications for US-Based Companies

In force since January 5, 2023, the CSRD represents a new era of transparency and accountability in corporate sustainability. Since its’ proposal by the European Commission in 2021, the CSRD has marked a significant shift in the Environmental, Social, and Governance (ESG) regulatory landscape. This groundbreaking directive will take a historically voluntary corporate initiative and make it into regulatory requirement for more than 50,000 companies. According to Sustainable Brands, that is expected to include an estimated 3,000 US companies.

The CSRD aims to transform how companies report on sustainability by enforcing clear, consistent, and comparable information. Building on the foundation of the Non-Financial Reporting Directive (NFRD), the directive introduces more extensive and stringent requirements.

Structure of the CSRD

Central to the CSRD’s framework are the European Sustainability Reporting Standards (ESRS), which provide detailed guidelines and metrics needed to comply with the CSRD. The ESRS, comprised of over 1,100 data points, are grouped into five main categories, with the first two focused on general principles and general cross-cutting standards.

Potential Impacts on Companies

Given the sheer amount of data that the CSRD requires, companies will likely need to spend more time and resources gathering and organizing information about their operations. This information includes but is not limited to data on climate-related risks, greenhouse gas emissions, human rights, diversity, and internal policies. Stakeholder engagement with groups such as investors, customers, and employees are also crucial to CSRD compliance.

How the CSRD Relates to US Companies

Companies in the US with operations, subsidiaries, or significant business interests in the EU are impacted by the CSRD. The requirement to comply with the CSRD depends on a company’s number of employees and amount of assets in the EU. Compliance with these reporting standards is currently and, in the future, will be essential to maintain market access in the EU and avoid legal repercussions. Non-compliance could lead to penalties and restricted market participation.

Supply Chain Impact: CSRD is focused on large US multi-nationals, however, the impact of CSRD will be felt far and wide by US companies. A key reporting obligation of CSRD is for the reporting companies to provide a wholistic representation of their business impacts across their entire value chain. This means companies currently providing services and products to large US multi-nationals should expect their customers to be asking for information about their sustainability activities, as this information will need to be rolled up and included in their CSRD reporting.

Critical Reporting Dates

January 1st, 2024: The CSRD reporting requirements started to apply to large public interest entities already subject to the NFRD.

January 1st, 2025: The requirements will extend to other large companies that have an EU subsidiary in scope of two of the three criteria: total assets exceed $27M, annual revenue exceed $54M, and has over 250 employees.

January 1st, 2026: Listed small and medium-sized enterprises (SMEs) will need to start reporting under CSRD, with the possibility of opting out until 2028.

Key First Steps for US Companies

• Engage Legal Counsel: Inquire with legal counsel to understand if, and when, your business would have to comply with the CSRD.
• Training and Awareness: Ensure that staff are trained in reporting and understand the specifics of CSRD requirements to ensure aligned data collection.
• Data Collection and Organization: Collect and organize company-wide data internally to make compliance easier.
• Double Materiality Assessment: The double materiality assessment is considered the first step of CSRD compliance, which allows companies to identify which disclosure requirements they will need to disclose. If your company has not done one yet, make plans as soon as possible for conducting one.
• Gap Assessment: Set up and perform a gap assessment to compare your current reporting requirements practices against the CSRD.

Questions to Ask Yourself

To navigate the CSRD, there are a few key questions companies can ask themselves.

• How do our current reporting practices stand up to the CSRD requirements?
• Are there resources and systems we need to implement or upgrade to meet these requirements?
• What internal timelines do we need to set to ensure compliance with the CSRD deadlines?

FAQ

Where can I find more information about the CSRD and ESRS?

More information about the CSRD and ESRS can be found on the official websites of the European Commission and the European Financial Reporting Advisory Group (EFRAG).

I need further help with CSRD, where do I go?

Have any further questions or want further help with CSRD? Reach out to our team for further guidance! Antea Group offers double materiality assessments and CSRD gap assessments.