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EU Corporate Sustainability Reporting Directive (CSRD): A New Era of Transparency and Accountability

  • Antonis Hadjicostas
  • Jan 4
  • 4 min read

Introduction


In recent years, the call for corporate transparency and accountability regarding sustainability has intensified across the globe. One of the most significant developments in this arena is the introduction of the EU Corporate Sustainability Reporting Directive (CSRD), which aims to enhance and standardize sustainability reporting across the European Union. This article explores the implications, benefits, and challenges of the CSRD for businesses and stakeholders.


On 5 January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force. It modernises and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability. Some non-EU companies will also have to report if they generate over EUR 150 million on the EU market.


The new rules will ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues. Finally, reporting costs will be reduced for companies over the medium to long term by harmonising the information to be provided.


The CSRD also requires assurance on the sustainability information that companies report and will provide for the digital taxonomy of sustainability information.


What the EU is doing


EU law requires all large companies and all listed companies (except listed micro-enterprises) to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.


This helps investors, civil society organisations, consumers and other stakeholders to evaluate the sustainability performance of companies, as part of the European green deal.


Understanding the Corporate Sustainability Reporting Directive (CSRD)


The CSRD, adopted by the European Commission in 2021, expands upon the existing Non-Financial Reporting Directive (NFRD). It mandates that a broader range of companies disclose comprehensive sustainability information in their annual reports. The directive applies to all large companies and all companies listed on EU-regulated markets, affecting approximately 50,000 companies compared to the 11,000 covered under the NFRD.


Key Features of CSRD


  1. Scope and Coverage: The CSRD encompasses all large companies (those meeting two of the three criteria: €40 million in net turnover, €20 million in total assets, or 250 employees) and all listed companies, including SMEs that are listed on EU markets.


  2. Standardized Reporting: The directive requires companies to report in accordance with EU sustainability reporting standards, ensuring consistency and comparability of information across sectors and borders.


  3. Double Materiality: Companies must assess and report not only how sustainability issues affect their performance but also how their activities impact the environment and society.


  4. Digital Accessibility: Reports must be prepared in a digital format, facilitating easier access and analysis by stakeholders, including investors, regulators, and the public.


  5. Assurance Requirements: The CSRD introduces a requirement for external assurance of sustainability information, thereby enhancing the credibility of the disclosures.


Benefits of CSRD


  1. Increased Transparency: By standardizing sustainability reporting, the CSRD fosters greater transparency, enabling stakeholders to make informed decisions based on consistent and comparable data.


  2. Enhanced Investor Confidence: Investors are increasingly prioritizing sustainability in their decision-making processes. The CSRD provides them with the necessary information to assess risks and opportunities related to sustainability.


  3. Driving Corporate Behavior: The directive encourages companies to adopt more sustainable practices, ultimately contributing to the EU's broader environmental and social goals, including the European Green Deal.


  4. Competitive Advantage: Companies that proactively embrace the CSRD can differentiate themselves in the marketplace, showcasing their commitment to sustainability and attracting socially conscious consumers and investors.



Challenges of CSRD


While the CSRD presents numerous opportunities, it also poses challenges for companies:


  1. Implementation Costs: Adapting to the new reporting requirements may require significant investments in data collection, systems, and processes.


  2. Complexity of Reporting: Companies may struggle with the double materiality concept and determining which sustainability issues are most relevant to their operations.


  3. Capacity Building: Many organizations may need to invest in training and capacity building to ensure their teams understand and can effectively implement the new requirements.


CSRD Compliance Timeframes


The rules will start applying between 2024 and 2030. If a company has not yet measured its carbon footprint, it will be important to start getting prepared as soon as possible.


  • Reports are due in 2025 for large, listed companies already subject to the NFRD.


  • Reports are due in 2026 for large companies not currently subject to the NFRD that meet the corresponding requirements. 


  • Reports are due in 2027 for listed SMEs and all others that meet the applicable requirements, although SMEs have the option to wait until 2030.


Conclusion


The EU Corporate Sustainability Reporting Directive marks a pivotal shift in how companies approach sustainability reporting. By fostering greater transparency and accountability, the CSRD not only empowers stakeholders but also drives the broader agenda for sustainable development. As businesses navigate this new landscape, those who embrace the directive's principles will not only comply with regulations but also position themselves as leaders in the sustainable economy.


As we look ahead, it is clear that the CSRD is not just a regulatory requirement but an opportunity for companies to rethink their strategies and contribute meaningfully to a sustainable future. The journey towards sustainability is ongoing, and the CSRD is a crucial step in making corporate accountability a reality.

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