What is the Corporate Sustainability Reporting Directive (CSRD)? 

The Corporate Sustainability Directive (CSRD) is an European Union directive designed to enhance the scope and quality of sustainability reporting by corporations operating within the EU. It mandates the detailed disclosure of a wide range of sustainability-related information. The CSRD replaces the Non-Financial Reporting Directive (NFRD) to meet growing demands for transparency. 

Key Changes from NFRD: 

The CSRD is part of the broader EU Sustainable Finance Framework, and it works alongside the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR) to achieve EU Green Deal goals.

Key element of CSRD reporting:

Double Materiality

Double materiality allows for a dual focus reporting on how company operations impact ESG factors, and how ESG factors affect business operations. Following the CSRD directive, companies must report on Impacts, Risks, and Opportunities (IROs) related to their operations and value chain.

Objectives and Scope of the CSRD

Objectives:

Scope:

Who is Subject to the CSRD?

The CSRD applies to all large companies and all companies listed on EU regulated markets, excluding micro-enterprises. The list is estimated to cover approximately 50,000 companies, a

significant increase from the 11,000 under the NFRD.

• Companies Under NFRD:
  • Criteria: Publicly listed, employ more than 500 people, and balance sheet > €25 million, or net turnover > €50 million.
• Large Companies:
  • Criteria: Meet at least two of the following:
    • Balance sheet > €25 million
    • Net turnover > €50 million
    • Employee count > 250
• Listed SMEs:
  • Criteria: Listed on EU markets, and meet two or more of:
    • More than 50 employees
    • Balance sheet > €5 million
    • Net turnover > €10 million
• Non-EU Companies:
  • Criteria: Non-EU companies with a significant EU presence, either through meeting any of the criteria above, or:
    • A net turnover > €150 million in the EU for two consecutive years, AND fulfills any of the following:
      • At least one subsidiary in the EU considered a “large company”
      • At least one listed subsidiary on an EU market
      • Has an EU branch with net turnover > €40 million

CSRD Reporting Implementation Timeline

Companies should prepare for full compliance, building robust systems for data collection and reporting.

Phased-In Approach:

NFRD Companies                                                    Listed SMEs

From January 1, 2024                                          From January 1, 2026

First report due in 2025                                      First report due in 2027

Optional two-year opt-out with an explanatory statement

Additional Phase-In Flexibility:

 First Year:

 Omission of anticipated financial effects from climate and other environmental impacts allowed.

 First Three Years:

  Qualitative disclosures allowed if quantitative disclosures are impracticable.

 Small Entities:

May omit data on GHG emissions, biodiversity, resource use, and social disclosures in first two reporting years.

CSRD Disclosure Requirements

Financial and Non-Financial Disclosures

Financial Disclosures:

 Traditional financial statements

  Financial implications of sustainability risks and opportunities

Non-Financial Disclosures:

 Environmental matters: Emissions, waste management, resource conservation  Social concerns: Employee well-being, human rights, community relations

 Governance issues: Board diversity, executive remuneration, anti-corruption measures

General Disclosure Requirements

Governance	Structures Policies Practices related to sustainability
Strategy and Business Model	Sustainability strategy Objectives Alignment with overall business strategy
Impacts, Risks, and Opportunities (IROs)	Processes for identifying and assessing material impacts Sustainability risks and opportunities.
Metrics and Targets	Specific metrics Targets for sustainability performance.