CSRD, Corporate Sustainability Reporting Directive, which will come into force at the beginning of 2024, replaces the NFRD (Non-Financial Reporting Directive), involving the publication of environmental, social and governance performance analysis. The CSRD is a European directive that will have to be transposed into the law of each member state. Here’s how it works.
What are the implications of the CSRD?
The CSRD aims at establishing standards for the comparability of information and to ensure greater reliability in the quality of data collected, in order to combat greenwashing and socialwashing. It will also establish a basis of reliable criteria for the evaluation of companies by lenders and investors.
Applicable from January 1, 2024, the CSRD is gradually expanding its scope of application. Eventually, it will cover more than 50,000 companies, compared with 11,600 under the previous non-financial reporting system.
Which criteria are taken into consideration?
Reports must analyse impacts through 12 criteria, in line with the European Sustainability Reporting Standards (ESRS).
These 12 criteria are divided into 4 main areas:
- general requirements
- environmental – climate change, pollution, marine and water resources, biodiversity and ecosystems, resource use and circular economy
- social – direct workforce, value chain employees, communities, consumers
- governance – business conduct.
Compliance with reporting requirements must be verified by an independent body.
Who does the CSRD apply to?
The CSRD will apply to listed SMEs and large EU companies meeting two of the following three conditions:
- more than 250 employees
- net sales in excess of €40 million
- balance sheet total in excess of €20 million
Large non-EU companies with net sales in excess of €150 million within the EU, and with a subsidiary or branch based in the EU, are also subject to this requirement.
When will the regulation be rolled out?
The obligations will be phased in between 2024 and 2028, according to the following schedule:
- January 2024 for companies already subject to the NFRD
- January 2025 for large companies
- January 2026 for listed SMEs
- January 2028 for companies outside the European Union falling within the scope of the NFRD.
How to get ready for it?
By first analysing the European Sustainability Reporting Standards (ESRS), to understand the fundamental concepts, the requirements for preparing and sharing information, and the control processes and procedures.
Only general information is mandatory. The other criteria must be completed if they have an impact on the company.
To this end, a key concept in reporting is the analysis of double materiality.
Financial materiality analyses the company’s financial performance in terms of environmental and social risks and opportunities. Impact materiality, on the other hand, identifies the environmental and social impacts, both positive and negative, generated by the company’s operations.
This two-folded approach offers a global vision of the challenges facing the company, and provides a robust basis for overseeing sustainable development issues.