EU CSRD

The world of sustainability is so full of acronyms (ESG, CSR, SFDR, TFCD) that it can be hard to navigate. Continuing our series on EU sustainability regulation, the following article breaks down the acronym du jour: CSRD.

The Corporate Sustainability Reporting Directive (CSRD) is a proposed EU legislation to implement EU sustainability reporting standards for large companies operating in the union, replacing and extending the scope of the existing Non-Financial Reporting Directive (NFRD). The proposal for CSRD was adopted by the European Parliament in April 2021.

An estimated 50,000 companies will need to report and comply. Currently, the scope of the directive extends to all companies with:

1. Over 250 employees
2. More than €40M in annual revenue
3. More than €20M in total assets
4. Publicly listed equities and have more than 10 employees or €20M revenue
5. International and non-EU companies with more than €150M annual revenue within the EU.

The goal of the CSRD is to standardise sustainability reporting, so that the information provided by companies is of consistently high quality and can be easily compared. In order to do this, the European Financial Advisory Group (EFRAG), was commissioned to develop sustainability reporting standards to be used by companies to comply with the CSRD  

Although the exact criteria of the reporting standards are not yet known, the European Sustainability Reporting Standards (ESRS) will cover the following:

• Environmental reporting will require information on: climate change mitigation and adaptation, water and marine resources, resource use and circular economy, pollution and biodiversity, and ecosystems.
• Social reporting will require information on: equal opportunities for all, working conditions and respect for human rights, fundamental freedoms, and democratic principles and standards.
• Governance reporting will require information on: composition of administrative, management, and supervisory bodies and their role regarding sustainability, business ethics and corporate culture (e.g. anti-corruption and anti-bribery), political engagements (e.g. lobbying activities), management and quality of business relation (e.g. payment practices), control and risk management systems.

In addition to these reporting topics, a key component of the proposed directive is the requirement for the sustainability information contained within the report to be digitally tagged, so as to be easily incorporated into the future “European Single Access Point”. The digital categorisation system is being developed at the same time as the sustainability reporting standard.

Moreover, the EU’s aim is to make sustainability reporting of the same quality as financial reporting, third party assurance is likely to be required by the directive. In practice, this means that an external party will need to provide “reasonable” assurance of the information provided in any sustainability report.  

Timeframe:

• The European Sustainability Reporting Standard (ESRS) is due to be approved by the European Commission in October 2022.
• In November 2022, the CSRD is due to be adopted into EU law, with companies expected to publish their first report in 2024, which would cover the 2023 fiscal year. 

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