In 2024 and beyond, the Corporate Sustainability Reporting Directive (CSRD) will transform the way companies across the EU report their environmental, social, and governance (ESG) efforts. Replacing the Non-Financial Reporting Directive (NFRD), CSRD expands the scope, depth, and transparency of sustainability reporting, ensuring businesses provide consistent, comparable, and reliable data to stakeholders.
If you’re wondering how this impacts your organization, this ultimate guide will walk you through what CSRD is, who needs to comply, how to prepare, and how this directive aligns with global sustainability reporting standards.
What is the Corporate Sustainability Reporting Directive (CSRD)?
The CSRD is a directive introduced by the European Union to improve and standardize sustainability reporting across businesses operating within the EU. Gradually, more companies are obliged to report under it each year.
It aims to address the gaps in the NFRD by ensuring sustainability information is as robust and verifiable as financial information.
Key Objectives of CSRD:
- Increase transparency in sustainability reporting.
- Align corporate disclosures with EU climate goals.
- Provide investors and stakeholders with reliable data.
- Enable businesses to track and manage ESG performance effectively.
The CSRD introduces detailed reporting requirements, including mandatory audits, and obligates companies to disclose their impact on the environment, society, and governance.
You can find the EU directive here (but it’s not an easy read).
Who Needs to Comply with CSRD?
The CSRD significantly broadens the scope of companies required to report. Under this directive, the following organizations are expected to comply:
- Large EU Companies meeting at least two of the following criteria:
- More than 250 employees.
- Over €40 million in turnover.
- More than €20 million in total assets.
- Listed Companies on EU-regulated markets, including SMEs (small and medium enterprises), with certain exceptions.
- Non-EU Companies generating more than €150 million in net turnover in the EU and having a branch or subsidiary meeting certain thresholds.
This expansion means approximately 50,000 companies will now fall under the directive, compared to 11,700 under the NFRD.
You can check your reporting obligations easily with the Reegy platform and see if you fall under the CSRD.
What Are the Reporting Requirements Under CSRD?
Under the CSRD, companies must report on their sustainability performance in line with the European Sustainability Reporting Standards (ESRS). These standards, developed by EFRAG (European Financial Reporting Advisory Group), ensure consistent and comparable reporting.
The CSRD defines the legal framework for sustainability reporting, while the European Sustainability Reporting Standards (ESRS) define the content to be reported
Key Reporting Areas
- Environmental Disclosures:
- Greenhouse gas (GHG) emissions (Scope 1, 2, and 3).
- Climate risk assessments and mitigation strategies.
- Resource use and circular economy practices.
- Social Disclosures:
- Employee working conditions and diversity.
- Human rights and labor standards across the supply chain.
- Community engagement and social impact.
- Governance Disclosures:
- Anti-corruption measures.
- Board diversity and governance structures.
- Risk management frameworks.
The CSRD so far includes 82 disclosures and 1,144 data points for disclosure requirements. Organizations are not required to cover all of them – and not at once. ESRS 2 – General Disclosures are mandatory for all reporting entities, however, others are only required if they are deemed material.
Audits and Assurance
A another key aspect of CSRD compliance is the requirement for third-party audits to verify the accuracy of reported data. This adds a layer of accountability and aligns sustainability reporting with financial reporting that most organizations are used to already.
Timeline for CSRD Compliance
The CSRD doesn’t apply to all companies right away. Instead, the EU and the EFRAG decided to introduce reporting obligations gradually over time, depending on the size and kind of company.
The goal is to not overburden smaller entities and organizations with reporting obligations.
Understanding the CSRD implementation timeline is crucial for planning. Here are the key dates to keep in mind:
- 2024: Large companies already under the NFRD must begin reporting for the financial year 2024.
- 2025: Large companies not previously covered by the NFRD start reporting for the financial year 2025.
- 2026: Listed SMEs, small financial institutions, and non-complex credit institutions begin reporting for the financial year 2026, with a possible one-year deferral.
- 2028: Non-EU companies meeting the €150 million turnover threshold must begin reporting.
How to Prepare for CSRD Compliance
Preparing for CSRD compliance requires a strategic approach. Here’s a step-by-step guide:
- Understand Reporting Standards: Familiarize yourself with the ESRS and identify which standards are most relevant to your industry and operations.
- Assess Your Current State: Conduct a gap analysis of your current sustainability reporting practices compared to CSRD requirements.
- Invest in Technology: Leverage sustainability automation platforms to streamline data collection, reporting, and auditing processes.
- Develop Robust Data Management Systems: Ensure your organization can collect and verify ESG data from various sources, including supply chain partners.
- Engage Key Stakeholders: Educate your board, executives, and employees about CSRD requirements and the benefits of compliance.
- Seek Expert Guidance: Partner with ESG consultants or firms specializing in sustainability reporting to navigate the complexities of CSRD.
Why CSRD Matters for Your Business
Whether or not your organization falls under EU’s reporting obligations, you should care about the CSRD.
First off, if you are required to report under the CSRD, failing to do so will incur heavy penalties – similar to the regulations of financial reporting.
Secondly, while the regulations apply to a certain set of companies as of now, this might change in the future. As such, it is better to be prepared as soon as possible.
Moreover, while you might not be required to by law, many OEMs now demand detailed reports by suppliers and their entire supply chain. And while in some cases it might be enough to disclose carbon emissions according to the GHG Protocol, the CSRD framework will give you a good baseline for your ESG reporting.
Last but not least, compliance with CSRD goes beyond meeting regulatory requirements.
Enhanced Stakeholder Trust
Transparent sustainability reporting boosts investor and customer confidence. More than 60% of all customers prefer to buy from companies that are environmentally conscious. This is also 27% more likely in case of Gen Z and Millennials, as a Harvard Business Review study found.
Access to Capital
ESG performance increasingly influences financing decisions and access to capital. Banks are more and more asking for CSR and sustainability KPIs even in the case of smaller companies.
Competitive Advantage
Companies that proactively embrace CSRD can position themselves as sustainability leaders in their industries. As BCG suggests, companies can reduce the environmental impact of their products by more than 40% by following sustainable design practices.
Operational Insights
Similar to how financial reporting enforces good business practices and solid financials, reporting under CSRD helps identify inefficiencies and areas for improvement in your ESG strategy. While “sustainability” is often taken for “environmental” efforts only, every company should strive to achieve sustainable business practices.
Great return on investment
A recent study by PwC has shown that consumers are willing to pay a 9.8% sustainability premium on products and services. By complying with the CSRD reporting guidelines, you can achieve great ROI and align your offer to the demands of the market.
The CSRD is here to stay
The CSRD will keep evolving and more companies need to comply with it every year. Instead of waiting for it to happen, become a first mover and prepare your ESG reports according to CSRD now.
We are here to guide you through it with our sustainability automation platform and ESG consulting services.
Reegy is a complete software solution for ESG & Carbon Footprint Management. Our Reegy Eco Hub enables enterprises, financial institutions and governmental organizations to manage their climate action in one central location along the entire value chain. Track, measure, reduce, and offset your carbon emissions, disclose them to regulators, stakeholders, and customers and lead your company to Net Zero on autopilot!