The new Corporate Sustainability Reporting Directive the “CSRD” was adopted by the EU in April 2021 to meet its Paris Agreement climate change goals. In scope companies (which includes those admitted to trading on an EU regulated market, large EU companies and groups, and non-EU companies generating annual EU revenues surpassing €150 million, with an EU branch annual net turnover of €40 million) will have granular reporting requirements on their ESG activities which must be published alongside the company’s financial statement.

The key objective of the CSRD is to require businesses to increase transparency and accountability in their “green” reporting. These reporting requirements will come into effect on a staggered basis between 2024 and 2028 depending on the size of the relevant company (i.e. large). The first reporting deadline applies to large companies or groups – see explanation of a ‘large company’ or a ‘large group’ below.

A company or a group will be considered ‘large’ if it meets two of the three following criteria:

• Balance sheet of EUR 25 million (determined in accordance of accounting principles of the relevant jurisdiction)
• Net turnover of EUR 50 million (determined in accordance of accounting principles of the relevant jurisdiction)
• An average number of 250 employees in a year (unless the company is an issuer or public interest entity)

The size of the company, the business activities and where the company is incorporated will all impact the deadline for reporting under CSRD.

Non-compliance with the CSRD could lead to significant financial and/or criminal penalties, depending on the European member state. There is also an increasing demand for transparency from investors and clients who want to select products and services that align with their values, so it’s important to consider these new reporting requirements to stay competitive.