I. What is it? CSRD definition
The Corporate Sustainability Reporting Directive (CSRD) establishes the European Sustainability Reporting Standards (ESRS) for large companies.
It has been published in the Official Journal of the European Union (OJEU) on December 16th 2022. It will now be transposed in national laws by all member states.
It replaces the Non Financial Reporting Directive (NFRD) that established in 2014 reporting and transparency obligations on sustainability in the EU for the largest companies. The CSRD goes further than the NFRD in terms of the number of companies concerned (50.000 vs. 11.000 for the NFRD) and in terms of reporting exigences.
II. Which companies are concerned? When?
The CSRD concerns :
A → All large companies, including non-EU companies listed on an EU regulated market and unlisted entities meeting at least two of the following criterias :
(i) average number of employees >250
(ii) >€40m net turnover
(iii) >€20m balance sheet total
For groups, all the group’s companies are also in the CSRD scope.
B → Listed SMEs meeting at least two of the following criteria :
(i) average number of employees between 10 and 250
(ii) net turnover between €700k and €40m net turnover
(iii) balance sheet total between €350k and €20m
C → Non-EU companies
generating at least €150m net turnover in the EU and with at least one branch (generating at least €40m net turnover) established in the EU.
Is consolidation possible for groups?
Yes.
If my company belongs to a group, which publishes a CSRD-compliant sustainability statement at group level, should I also publish one just for my company?
Large unlisted entities and listed SMEs (including subsidiaries of non-EU groups) are exempt from publishing their own sustainability statements if they are in a group which publishes consolidated “CSRD compliant” sustainability statements.
However, the subsidiary exemption does not apply to large listed companies.
The CSRD timeline
Sector-specific standards may be adopted in 2023-2024, but the general timeline is the following :
2024 (reports published early 2025) for Public Interest Entreprises with more than 500 employees (already subject to the NFRD).
2025 (reports published early 2026) for large companies (criteria mentioned above) which were not subject to the NFRD.
2026 (reports published early 2027) for listed SMEs (criteria mentioned above). A two-year delay can be adopted under specific conditions (still to be defined).
2028 (reports published early 2029) for non-EU entities (criteria mentioned above).
III. What information should be published?
In its report, the company should include :
1) A concise description of the company’s business model and strategy;
2) The sustainability targets set by the company. They must be time-bound and measurable;
3) The administrative management and supervisory bodies that are responsible for the company’s sustainability subjects, detailing their expertise and skills in relation to fulfilling that role or the access they have to such expertise and skills;
4) A description of the company’s strategy and action plan to reach its sustainability targets;
5) Information about the existence of incentive schemes linked to sustainability matters which are offered to members of the administrative, management and supervisory bodies;
6) a description of:
- the due diligence process implemented with regard to sustainability matters (how the company observes, documents and measures its impact)
- the principal actual or potential adverse impacts caused by or related to the company’s own operations and with its value chain;
- any actions taken by the company to prevent,mitigate, remediate or bring an end to these actual or potential adverse impacts, and the result of such actions;
7) a description of the main risks to the company related to sustainability matters,
including a description of the company’s principal dependencies on those matters, and how the company manages those risks;
8) indicators relevant to the points 7 and 8.
What is the double materiality principle ?
As mentionned in the above points 6 and 7, the CSRD requires companies to disclose the impact of their own operations and value chain on sustainability matters (6) but also the main risks to the company related to sustainability matters (7). This is what we call the “double materiality” principle.
IV. The limited assurance requirement
The CSRD requires the company’s statutory auditor, another auditor (Member State option) or an independent assurance services provider (Member State option), to provide limited assurance around a company’s reported sustainability information.
The assurance provider will express an opinion on the compliance of the sustainability reporting with the European (and possible national) requirements as well as the process carried out by the company to identify the reported sustainability information.
V. My company is concerned : how should we proceed?
If your company was not concerned by the NFRD and has never published sustainability statement, you can follow these steps :
A. What you can do now
- Read the CSRD (objectives, reporting structure, methodologies, etc.)
- Conduct a double materiality assessment and identify your main sustainability issues (impacts, risks and opportunities)
- Conduct a “gap analysis”, comparing the reporting requirements and where your company is now, to have a first idea of the “gaps” you need to bridge to meet these future requirements.
- Based on that gap analysis, build an action plan to adapt your business, processes, reporting and data management
B. What you can do next (2024-2025)
- Implement the new data collection and reporting system
- Collect the information needed for your first sustainability statements
- Define the structure and content of your statements, based on the final ESRS adopted by the end of June 2023
- Choose the company that will audit your sustainability statements in early 2026
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