The Corporate Sustainability Reporting Directive (CSRD)

As of January 5, 2023, the Corporate Sustainability Reporting Directive (CSRD) is in effect, enhancing social and environmental reporting for businesses. It broadens reporting requirements to include more large companies and listed SMEs. The CSRD ensures vital information is available for stakeholders and investors to evaluate social, environmental, and financial aspects efficiently. Additionally, it aims to reduce reporting costs by streamlining information.

Compliance Requirements and Implications

The Corporate Sustainability Reporting Directive (CSRD) is one such regulation that demands your attention. Let's learn more about the compliance requirements and implications of the CSRD, helping you navigate the complexities of this directive effectively.

Compliance Requirements

The CSRD, an extension of the existing Non-Financial Reporting Directive (NFRD), brings forth several key compliance requirements:

• Expanded Scope: Unlike the NFRD, which primarily applied to large public-interest entities, the CSRD casts a wider net. It encompasses a broader range of companies, including small and medium-sized enterprises (SMEs). Mid-sized organizations are no longer exempt, and the thresholds for reporting have been lowered.
• Mandatory Sustainability Reporting: Under the CSRD, sustainability reporting becomes a mandatory obligation for companies. It's no longer a voluntary initiative. The directive defines specific sustainability information that must be reported, including environmental, social, and governance (ESG) metrics.
• Digital Reporting: The CSRD introduces a shift towards digital reporting. Companies will need to use European Single Electronic Format (ESEF) for sustainability reports. This shift aims to enhance transparency and accessibility of sustainability data.

Implications of Non-Compliance

Understanding the implications of non-compliance is essential. Failing to adhere to CSRD requirements can have far-reaching consequences:

• Legal Penalties: The CSRD comes with the teeth to enforce compliance. Companies that do not meet the reporting obligations may face legal penalties, fines, or even bans from accessing EU markets.
• Reputational Risks: Beyond legal ramifications, non-compliance poses significant reputational risks. In an era where consumers and investors increasingly prioritize sustainability, a failure to report transparently can damage your brand's reputation.
• Competitive Disadvantage: Companies that embrace sustainability reporting and align their strategies with ESG goals stand to gain a competitive edge. Failing to comply with the CSRD puts your organization at a disadvantage.

Ensuring Efficient Compliance

To efficiently navigate the CSRD compliance landscape, consider these strategies:

• Early Assessment: Begin by conducting a thorough assessment of your organization's current reporting capabilities and data collection processes.
• Invest in Data Management: Robust data collection and management systems are critical. Explore data automation tools and software solutions.
• Internal Controls: Establish internal controls to guarantee data accuracy and compliance.
• External Expertise: If necessary, seek external expertise from sustainability consultants or auditing firms.

Who Must Comply

It's crucial to understand which companies fall under the purview of this directive. The CSRD brings about significant changes in terms of the scope of companies required to comply.

Expanded Scope

The CSRD significantly broadens the range of companies obligated to report on their sustainability performance. Key changes include:

• Extension Beyond Public-Interest Entities: While the previous Non-Financial Reporting Directive (NFRD) primarily applied to public-interest entities, the CSRD extends its reach to encompass a wider array of entities.
• Lowered Thresholds: One of the most noteworthy changes is the lowering of reporting thresholds. Under the CSRD, smaller and medium-sized entities may now meet the criteria for reporting.

Threshold Criteria

To determine if your company is subject to CSRD compliance, consider the following criteria:

• Size: The CSRD includes "large" companies, defined as those exceeding at least two of the following thresholds for two consecutive financial years:

  • €20 million in total assets
  • €40 million in net turnover
  • An average of 250 employees during the financial year
• Listed on EU Markets: Companies whose securities are traded on EU-regulated markets, regardless of size, must comply with CSRD requirements.
• Non-Financial Undertakings: Non-financial undertakings with over 500 employees, exceeding at least one of the financial thresholds mentioned, must report under CSRD.

Compliance Phases and Deadlines

Understanding the timeline for the implementation of the Corporate Sustainability Reporting Directive (CSRD) is essential for businesses aiming to navigate this regulatory landscape effectively.

Preparing for CSRD Compliance

Prepare your business for CSRD compliance with these essential steps: