The Corporate Sustainability Reporting Directive, Directive (EU) 2022/2464 (CSRD) is part of the European Union’s efforts to enhance the scope and quality of sustainability reporting among companies. It imposes sustainability reporting obligations on an increased number of EU and non-EU companies. While some companies will have to file their reports as early 2025, most companies will have until 2026 to report on the financial year of 2025.

What is it?

The CSRD is a legislative measure introduced by the European Union to improve the quality, consistency and comparability of sustainability information provided by companies. It broadens the scope of businesses required to disclose sustainability information, including their impact on people and the environment but also their business. The directive is part of the EU’s Green Deal and its sustainable finance agenda, aiming to channel capital towards sustainable investments.

The Directive entered into force on 5 January 2023 and needed to be transposed into the national laws of the EU 27 Member States by 6 July 2024. As of today, only some EU country have implemented the Directive notably Bulgaria, Czechia, Denmark, Ireland, France, Croatia, Italy, Lithuania, Hungary, Romania, Slovakia and Sweden.

Which companies have to report?

The CSRD significantly expands the number of companies subject to sustainability reporting requirements, covering all large companies and all companies listed on regulated markets (except listed micro-enterprises), affecting 50,000 or more companies, a substantial increase from the 11,000 companies under the NFRD.

The CSRD significantly expands the pool of businesses required to adhere to its reporting requirements compared to its predecessor and now also includes:

• Any listed companies in the European Union (even non-EU companies listed on European stock exchanges) except for micro companies (companies fewer than 10 employees and an annual turnover or balance sheet below €2m). This includes small and medium size undertakings (SMEs).
• Large companies. This includes companies that exceed at least 2 of the 3 following criteria for 2 consecutive financial years:
  • € 25 million balance sheet total
  • € 50 million net turnover
  • Average of 250 employees
    This category also includes subsidiaries of non-EU parent companies.
• Non-EU companies which have
  • net sales of more than €150 million in the EU (for each of the last 2 consecutive financial years), and
  • at least 1 large company (see above) in the EU, or
  • an EU-listed subsidiary (see above), or
  • an EU branch with a net turnover of more than €40 million in the preceding financial year.

Exemptions

Some exemptions apply like the exemption of subsidiary undertakings from the obligation to report non-financial information where such undertakings and their immediate parent companies are included in the consolidated management report of their ultimate parent undertaking, or the exemption of parent undertakings from the obligation to prepare consolidated financial statements and a consolidated management report where parent undertakings are subsidiary undertakings of another parent undertaking that complies with that obligation.

Timeline of reporting obligations

• Large EU and non-EU listed companies (and financial institutions) with more than 500 employees: reporting in 2025 for the financial year 2024.
• Large EU and non-EU non-listed companies with more than 500 employees: reporting in 2026 for the financial year 2025.
• Listed EU SMEs: reporting in 2027 for the 2026 financial year.
• Subsidiaries or EU branches of non-listed non-EU companies: reporting in 2029 for the financial year 2028.

Reporting standards

Under the CSRD, companies need to provide a detailed account of their sustainability practices, including their business model’s impact on climate change, environmental resources, social rights, and human rights. The reporting must follow strict standards to ensure consistency and comparability. This includes using the European Sustainability Reporting Standards (ESRS), which are being developed to provide a comprehensive framework for reporting across different sectors and sustainability matters. Companies are required to report on how sustainability matters affect their business and vice versa how their business impacts on the environment and people, encompassing environmental protection, social responsibility, and governance (ESG) factors.

Reporting will have to include information on:

• Business strategy and sustainability: companies must disclose their business strategy, emphasizing its resilience against sustainability-related risks and its alignment with sustainable, climate-neutral economic transitions in accordance with the 2015 Paris Agreement. This includes detailing plans to accommodate stakeholder interests, seize sustainability opportunities, and the impact of sustainability on business strategy implementation. Progress towards sustainability targets and the role of the board and management in sustainability issues are also required disclosures.
• Intangibles and sustainability information: beyond tangible assets, companies should report on intangible aspects like intellectual and human capital, R&D, and social and relationship capital. This includes the identification process for such information, due diligence procedures, and relevant KPIs. Disclosures should offer both a forward-looking and retrospective perspective, encompassing qualitative and quantitative data across the company’s value chain.
• Compliance with new sustainability reporting standards: under new standards, companies are required to provide an integrated report on their environmental impact and performance. This encompasses a wide range of factors including environmental dependencies and impacts (climate, air, land, water, biodiversity), risks from physical environment changes and transition to a carbon-neutral economy, climate resilience, greenhouse gas emissions and offsets, energy use, social considerations (equal opportunities, human rights), governance structure, internal control and risk management systems, business ethics (including anti-corruption and anti-bribery measures), and the quality of relationships with business partners.

Auditors

The CSRD introduces a requirement for the assurance of sustainability information, marking a significant shift towards higher accountability and reliability in reporting. The directive mandates that reported sustainability information undergoes an audit by independent auditors or assurance service providers. The role of auditors is thus elevated, tasked with verifying the accuracy and completeness of the sustainability data disclosed by companies.

Penalties and next steps

Non-compliance with the CSRD may result in penalties, defined by EU member states’ national laws implementing the directive, emphasizing the importance of adherence to the new directive. Companies are encouraged to develop robust ESG data management practices to facilitate compliance and mitigate risks associated with sustainability reporting.

Integration with other regulations

The CSRD aligns with other EU initiatives, such as the EU Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR), ensuring harmonized sustainability reporting across the EU. This alignment is aimed at creating a cohesive framework for reporting sustainability information, essential for informed investment decisions and fostering a sustainable economy.