CSRD

The new Corporate Sustainability Reporting Directive (CSRD) is expected to have a significant impact on how companies across the European Union report on their sustainability efforts. CSRD will replace the previous EU directive on non-financial reporting (NFRD) and is expected to raise the standard for how companies disclose their sustainability work.

Companies will be required to comply with CSRD at different times depending on their size, but the standards will begin to be applied between 2024-2028.

- Financial year 2024, with reports submitted in 2025: Large companies of public interest with over 500 employees that are already covered by NFRD.
- Financial year 2025, with reports submitted in 2026: Large companies that are currently not covered by NFRD, i.e., companies with over 250 employees and/or a turnover of over 40 million euros and/or total assets of over 20 million euros.
- Financial year 2026, with reports submitted in 2027: Listed small and medium-sized enterprises (SMEs) and other companies. SMEs have the option to opt-out from reporting until 2028.

• CSRD will significantly increase the number of companies subject to sustainability reporting requirements. Companies that meet two of the following criteria will be required to report under CSRD:

  - €40 million in turnover
  - €20 million in total assets
  - 250 or more employees
  The requirements for initial application are complex and require a more in-depth analysis. For example, listed small and medium-sized enterprises (SMEs) can choose to postpone their reporting from 2026 to 2028, and there are specific rules for non-EU parent companies with significant operations and revenues within the EU in their group.

   

   

CSRD is expected to significantly raise the bar for corporate sustainability reporting. Among other things, CSRD will require companies to report based on a double materiality analysis, considering both the perspective of impact materiality and financial materiality, which includes assessing risks and opportunities. Additionally, companies will need to consider their entire value chain in reporting, looking beyond their own operations to include suppliers, customers, and other stakeholders involved in production and distribution.

ESRS (European Sustainability Reporting Standards) is the newly developed reporting standard that companies will be required to report according to under CSRD. ESRS consists of general standards that cover areas such as climate, environment, society, and corporate governance. Additionally, industry-specific standards will be published, which will affect companies based on the nature of their business. The purpose of ESRS is to enhance transparency and comparability in sustainability reporting.

ESRS is divided into three main areas:

Environmental aspects: This includes climate change, pollution, impact on water and oceans, biodiversity, resource utilization, and circular economy.

Social issues: This encompasses working conditions for employees within the company and suppliers, societal impact, and consideration of consumers and users.

Corporate governance: This involves reporting on how the company manages sustainability issues, including impact, risks, and opportunities, as well as measurement points and goals for sustainability reporting.

Each category needs to be reported within four areas: corporate governance, strategy, impact, risks and opportunities, and measurement points and goals. It entails providing both general and subject-specific information based on ESG.

CSRD will require companies to report based on a double materiality analysis. With an assessment based on double materiality, companies must report both from an impact materiality perspective and a financial materiality perspective. In other words, companies need to consider the impact of sustainability risks on their own operations, as well as the impact of their operations on society and the environment. This change will require companies to take a more holistic view of sustainability by considering both the financial and non-financial effects of their business.