The Corporate Sustainability Reporting Directive: Is your business affected?
It is no longer a secret that sustainability plays an increasingly essential role in the business world. Reporting on environmental, social and governance (ESG) related matters is almost mandatory these days if one wants to continue to be successful in one's business. And although there are a certain number of reporting standards that companies can use as frameworks, businesses currently still have a considerable amount of flexibility when it comes to ESG reporting. Due to different requirements, it is difficult to compare the individual reports with each other, which is why the calls for a unified standard are constantly growing. Fortunately, those calls have been heard, and the European Commission has recently announced plans for a common European standard - the CSRD. But what will change with the CSRD, and will your business be affected by it?
What is the CSRD?
CSRD stands for Corporate Sustainability Reporting Directive and is a new regulatory proposal by the European Commission (EC) to make sustainability-related disclosures more standardised among European companies. On 21 April 2021, the European Commission issued a new proposal that would amend the current Directive 2014/95/EU, also known as the Non-Financial Reporting Directive (NFRD). What does that imply for businesses? Non-financial information will have to be included in the management reports of even more companies.
The first set of standards is expected to be adopted by October 2022, with the new disclosure requirements starting to apply in January 2023. This means that the affected companies will have to publish their respective sustainability reports in January 2024 with data from the previous year. Now, is your company required to comply?
Who will have to comply with the CSRD?
The current Non-Financial Reporting Directive (NFRD) applies to large companies with more than 500 employees, including listed companies, insurance companies and banks, and currently covers around 11.700 companies.
Under the new CSRD directive, all large public-interest companies and the ones listed on EU regulated markets are required to report on sustainability-related matters. Large companies are those that meet at least 2 of the following criteria:
- 250 or more employees
- €40 million in net turnover
- €20 million in assets
Small and medium enterprises (SMEs) will not face any new disclosure requirements, except for SMEs that are listed on EU regulated markets. For those listed SMEs, there will be specific standards issued by 31 October 2023 that are simpler than those that apply to larger companies. While SMEs do not yet have an obligation to follow the new standards, they can choose to do so voluntarily, reporting under the new directive.
Furthermore, the new CSRD will not only be applicable to EU companies, but also non-EU-based companies that have a subsidiary in the EU.
What does the CSRD involve?
Under the current NFRD, companies are required to publish information that involves environmental matters, social responsibilities, as well as the treatment of employees, anti-corruption and bribery, the respect for human rights, and diversity on company boards. With the Corporate Sustainability Reporting Directive (CSRD) being an amendment of the reporting requirements of the NFRD, there are a couple of elements that will change with the implementation of the new standard:
- As previously mentioned, the number of companies concerned will increase significantly, with the number of companies almost quadrupling to 50.000
- An external audit of reported information will have to be carried out, making it mandatory for the non-financial information to be verified by an external auditor
- Reporting requirements will be listed more detailed and according to the obligatory EU sustainability reporting standards
- Management reports will have to be published in a certain format and companies are required to digitally tag the information, so it can be included in the European Single Access Point (ESAP) initiative, an anticipated EU project to create a European ESG database with open-access.
- The concept of “double materiality” will play an important role in the new set of standards. Companies are hereby invited to take into consideration not only the impact of sustainability-related matters on the company’s equity, but also the business’s impact on the environment, people and the economy.
Below you can see an overview of the changes compared to the current NFDR:
Take action today
Although 2023 might still seem far away, we strongly recommend getting started with the process as soon as possible and to get ahead with gathering all the information necessary.
If you would like to discuss how we at Planetly could support you along the way, please feel free to reach out to us.