Since 5 January 2023, large and listed companies in the EU have been required to align with the Corporate Sustainability Reporting Directive (CSRD). The directive updates business requirements for reporting on social and environmental information. We’ve highlighted the need-to-know information for businesses in our latest guide.
What are the new CSRD reporting rules?
The EU Corporate Sustainability Reporting Directive (CSRD) is a regulatory framework introduced by the European Union to enhance corporate sustainability reporting. The CSRD replaces the existing Non-Financial Reporting Directive (NFRD) and aims to improve the quality, consistency, and comparability of sustainability information disclosed by companies.
Under the CSRD, large and listed companies (apart from listed micro-enterprises) must report on a broader range of sustainability-related matters, including environmental, social, and governance (ESG) factors. The directive sets out detailed rules for reporting, including mandatory disclosure of specific sustainability indicators and reporting on sustainability policies, risks, and targets. The framework also aims to create a culture of transparency regarding the impact of companies on people and the environment.
What kind of businesses does the CSRD apply to?
The CSRD greatly expands the number of companies that are within the realm of the EU’s ESG reporting schemes as well as the detail that needs to be reported. It covers all large companies, including listed companies, credit institutions, and insurance undertakings:
- Large EU company with a net turnover greater than €40m or number of employees in a financial year greater than 250
- EU Parent of large groups or listings
- Public interest undertakings (including SMEs)
Any companies already subject to the Non-Financial Reporting Directive (NFRD) must also comply with the new directive.
Additionally, certain public-interest entities (PIEs) such as banks, insurance companies, and listed companies also fall under the scope of the directive. The CSRD is expected to cover around 49,000 companies within the EU, which is a big leap compared to the roughly 12,000 previously reporting to the NFRD.
Does the CSRD apply to UK businesses even though we aren’t in the EU?
The CSRD only applies to non-EU companies if they have at least one subsidiary or branch in the EU and are generating a net turnover of more that €150m in two consecutive financial years, and also either:
- have an EU subsidiary that is a large undertaking or public interest entity, or
- have a branch in the EU that generated €40 million net turnover in the preceding financial year
What do companies need to report?
Companies covered by the CSRD will need to report according to the European Sustainability Reporting Standards (ESRS). The first set of ESRS was adopted in July 2023, and companies will be required to report on a wider range of ESG standards, including double materiality and value chain impact. The adoption of sector-specific standards was initially scheduled for June 2024 but has been postponed to June 2026.
When will reporting start?
The CSRD is set to be phased in gradually. The specific reporting deadlines will depend on the company’s financial year-end, but it is essential for companies to start preparing for compliance well in advance to ensure a smooth transition.
- Companies already required to report under the NFRD will need to start reporting for financial years beginning on or after January 1, 2024, with their reports published in 2025.
- Other large EU companies will begin reporting from financial years starting on or after January 1, 2025 (with publication in 2026).
- SME public interest entities are expected to start reporting for financial years beginning on or after January 1, 2026, with reports published in 2027.
- SME non-public interest entities can opt out of the reporting requirements until financial years starting before January 1, 2028. However, they must provide a brief explanation in their management reports if they choose not to report.
The CSRD is set to massively impact ESG reporting for applicable businesses in the EU – don’t wait to prepare for the directive’s standards. Get in touch with our experts at Sustainable Energy First so your organisation will be ready the new reporting directive.
