What is the Corporate Sustainability Reporting Directive (CSRD)?
With the Corporate Sustainability Reporting Directive (CSRD), companies have to report on their social and environmental impact more comprehensively. The CSRD reporting directive aims to improve transparency and comparability of companies’ sustainability reports.
CSRD requires a wider range of large companies and listed small and medium-sized enterprises (SMEs) to comply compared with previous legislation. This change will enable investors and other stakeholders to access the necessary information to evaluate a company’s impact on the environment and people. Additionally, it will help investors assess the financial risks and opportunities related to sustainability issues and climate change. It is hoped that the CSRD directive will reduce reporting costs for companies in the medium to long term by streamlining the information that needs to be provided.
The developments in this directive are a crucial step towards the European Green Deal and making the European continent carbon neutral by 2050.
Objectives of the Corporate Sustainability Reporting Directive
The CSRD aims to enhance the consistency, comparability, and dependability of sustainability information disclosed by companies while extending reporting requirements to a broader range of organisations, including small and medium-sized enterprises (SMEs). One of the other objectives of the CSRD is to promote the integration of sustainability considerations into company strategy, decision-making, and governance.
What types of companies are impacted by CSRD?
The CSRD covers over 50 thousand companies that comprise approximately 75% of businesses in the European Economic Area.
The CSRD covers all companies listed on an EU-regulated market (excluding micro-enterprises).
Large EU companies must comply with CSRD if they meet two out of the following three criteria:
- Balance sheet total > €20 million
- Net sales > €40 million
- Number of employees > 250
Small and medium-sized EU enterprises (SMEs) must also comply with the CSRD if they meet two out of the following three criteria (excluding micro-enterprises):
- Balance sheet total > €350,000
- Net turnover > €700,000
- Number of employees > 10
Also, non-EU companies with a turnover of above €150 million in the EU must comply.
The European Commission adopted the CSRD in late 2022, and it will be enforced between 2024 and 2028.
- Starting 1 January 2024, large public-interest companies (with more than 500 employees) already adhering to the Non-Financial Reporting Directive (NFRD) will have reports due in 2025.
- From 1 January 2025, large companies not currently bound by the NFRD (employing more than 250 individuals and/or having a turnover of €40 million and/or total assets of €20 million) will have reports due in 2026.
- From 1 January 2026, listed SMEs and other entities will have reports due in 2027. SMEs have the option to opt out until 2028.
What are the CSRD requirements?
The CSRD sets out new requirements for sustainability reporting, including mandatory disclosures of key environmental and social indicators, governance policies, and performance against ESG targets. The reporting framework includes a broad range of ESG factors such as carbon emissions, resource use, human rights, employee diversity, and board diversity. The CSRD aims to encourage more robust reporting on greenhouse gas emissions, gender pay gaps, and other sustainability metrics. The proposed framework also includes assurance guidelines for auditors, ensuring the reliability of information.
Under the CSRD, companies will need to disclose scope 3 emissions. These indirect emissions arise from the company’s activities upstream and downstream. Measuring them can be challenging, and it takes time. Therefore, companies should initiate actions now to ensure compliance with CSRD regulations.
What are the benefits of the CSRD for businesses?
The benefits of CSRD for businesses are significant. Firstly, it will encourage businesses to integrate ESG considerations into company strategy and decision-making processes, leading to sustainability benefits to society and the environment. The CSRD aims to increase transparency, providing accurate and reliable information supporting informed decision-making and a better-informed market.
The CSRD could enable easier identification of sustainability risks and opportunities, increased stakeholder engagement and improved performance management, helping companies reach their net-zero goals. Furthermore, it can promote advancements in corporate social responsibility, driving towards a more sustainable and equitable future.
How does Faradai support you?
Faradai’s Net-Zero Intelligence Platform offers a comprehensive solution to digitise your company’s data collection and sustainability reporting process. Unify your systems and create a single source of truth to ensure your reports stand up to scrutiny. Take the pain out of reporting so you can focus on taking steps to decarbonise.
To learn more about how Faradai can support you digitise your net zero journey, reach out to us at [email protected].