CSRD

The Essentials of CSRD: A Quick Guide to Accelerate your Green Transition

The Essentials of CSRD: A Quick Guide to Accelerate your Green Transition

On January 5th, 2023 the Corporate Sustainability Reporting Directive (CSRD) entered into force. Broadening the scope of previous regulations, the CSRD requires companies to publicly disclose the impact of their activities on the environment and society, and perform an assurance on the reported information. But how does it work in practice? Who does it affect? What and when do you need to report? Check out our CSRD article and ebook to improve your understanding of the legislation and how it may affect you.

Download your free summary CSRD e-book to have everything you need to get started always at hand.

In this article, we will cover the following topics:

  • The NFRD Becomes CSRD
  • CSRD’s Connection to the EU Taxonomy
  • CSRD: What is New?
  • Who Is Subject to the CSRD?
  • Companies Under The NFRD
  • All Large Companies
  • Non-EU Companies
  • Listed Small and Medium Sized Enterprises (SMEs)
  • What are the European Sustainability Reporting Standards (ESRS)?
  • CSRD: Key takeaways
  • How to Get Started with Greenomy

The NFRD Becomes CSRD

The Corporate Sustainability Reporting Directive (CSRD) is the EU's new mandatory sustainability reporting directive, which replaced the 2017 Non-Financial Reporting Directive (NFRD) on the 5th of January, 2023. It aims to strengthen and broaden the existing regulatory requirements by standardizing the disclosures of the environmental, social, and good governance (ESG) impact of companies’ activities (including value chains).

The CSRD is expanding the NFRD’s scope from around 11,700 to 50,000 EU companies, and it is applicable in different stages, as of January 2024. By July 2024, Member States shall bring into force the laws, regulations and administrative provisions necessary for companies to comply with the CSRD at a national level. Transposition should not affect the established dates for compliance.

Read Grenomy’s article on the evolution of the NFRD to the CSRD to learn more.

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CSRD’s Connection to the EU Taxonomy

The CSRD significantly expands the scope of disclosures, both quantitative and qualitative, that companies will have to make. Among the new requirements for ESG reporting we find the double materiality assessment, reporting through the European Sustainability Reporting Standards (ESRS) and due diligence practices and audits (limited assurance). However, the directive also aims to harmonize and consolidate non-financial information under the existing EU sustainable finance rules, such as the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR).

The CSRD’s reporting standards were developed in accordance with the “Substantial Contribution” and “Do No Significant Harm” criteria of the EU Taxonomy, which means that some disclosures under the CSRD include disclosures on EU Taxonomy-aligned activities. In addition, companies under the scope of the CSRD must also comply with Article 8 of the EU Taxonomy regulation.

Besides the direct connection to the EU Taxonomy, the CSRD has non-financial data points to ensure that businesses can report on the information required by financial market participants, such as asset managers, to complete their principal adverse impact (PAI) regime and other disclosures needed under the SFDR.

CSRD: What is New?

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Who Is Subject to the CSRD?

Companies Under The NFRD

EU Companies already subject to the NFRD, including large EU public interest companies, are obliged to report if they meet the following conditions:

  • is the company listed?;
  • are there more than 500 employees?;
  • is the balance sheet above €20 million or the net turnover above €40 million?

If the answer is yes, compliance is mandatory. If the answer is no, compliance is voluntary. The reports would be due in the calendar year 2025, based on data from the financial year 2024.

All Large Companies

All large companies are obliged to report if they meet at least 2 of the following requirements:

  • the balance sheet is above €20 million;
  • the net turnover is above €40 million;
  • or they have more than 250 employees.

All large companies in scope would report in the calendar year 2026, based on data from the financial year 2025.

Non-EU Companies

Non-EU companies with listed securities on an EU regulated market, considered a listed large undertaking or Small and Medium Enterprises (SME) under EU law, or having a branch or subsidiary in the EU (excluding micro-enterprises) may also be in scope of the CSRD. According to private research, this may concern up to 10,000 extra companies. These companies may need to do their reporting in 2025, 2026, 2027, or, at the latest, in the calendar year 2029, reporting on data from the financial year 2028.

To further understand the practical implications for non-EU companies see our dedicated article on how the CSRD applies to non-EU companies.

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Companies may wish to calculate their score before being required to do so. Anticipating the exercise allows them to take action and improve their credentials before having to disclose them publicly or on request from third parties.

Listed Small and Medium Sized Enterprises (SMEs)

For listed SMEs and non-EU companies with a listed SME in the EU the landscape looks slightly different. All listed SMEs are required to report on the calendar year 2027, reporting on data from the financial year 2026. However, there are a few exceptions.

  • Firstly, SMEs may opt out of reporting for 2 years under the CSRD. Therefore, they will be required to comply later, in 2029, reporting on the data from the financial year 2028.
  • Secondly, listed micro-enterprises are exempt from the scope of the CSRD.
  • Finally, SMEs will be subject to a more limited set of standards. In short, they will have to comply with a simplified set of ESRS.

What are the European Sustainability Reporting Standards (ESRS)?

The ESRS are standards that define the rules of the CSRD. They set the structure and disclosure requirements that companies, banks, and insurance companies in scope will need to report on. The European Financial Reporting Advisory Group (EFRAG), as technical advisor for the EU Commission, is developing the ESRS for companies to report their sustainability information on a standardized and common basis to ensure access to reliable, transparent, auditable, and comparable data.

The complete first set of draft ESRS Exposure Drafts (EDs) were published in April 2022. The most recent update was published in November 2022 with the following structure:

  • Cross-cutting standards: applicable to reporting on all sustainability matters.
  • Sector-agnostic or topical standards: applicable to reporting independent of the sector.
  • Sector-specific standards: applicable to all within a sector.

As of April 2023, the only documents already available are exposure drafts of the Cross-cutting standards and the Sector-agnostic or topical standards published in Nobember 2022. EFRAG has yet to publish the sector-specific ESRS and the simplified version that will be applicable for SMEs and non-EU companies. The existing draft standards are expected to be adopted in the form of delegated acts by 30 June 2023.

Besides the exposure drafts, EFRAG has published educational videos on the standards and their Basis for Conclusions, to complement the information within the ESRS.

If you would like to know more about the ESRS, see our dedicated publication on the European Sustainability Reporting Standards.

CSRD: Key takeaways

  • CSRD is due to be rolled out in four stages
  • 2025 (FY 2024) for companies already under NFRD scope;
  • 2026 (FY 2025) for large companies;
  • 2027 (FY 2026) for listed SMEs except for micro-enterprises;
  • 2029 (FY 2028) final year to report for non-EU companies with subsidiaries/branches.
  • Every financial year starts on January 1st.
  • Exposure drafts of the ESRS disclosures facilitate comparability of the sustainability information set out in the CSRD.
  • The inclusion of the double materiality approach acknowledges that both financial and non-financial risks are material to measure the impact of a company's activities.

Download the complete summary e-book “The Essentials of CSRD” here.

Disclaimer: This guide is a living document and is subject to change without notice as the EU Taxonomy and related legislation continue to evolve

How to Get Started with Greenomy

Implementing the EU Sustainable Finance Regulations poses various challenges. The CSRD comes with new more detailed and specific regulatory requirement challenges as well as new standards, the ESRS, that companies in scope will need to use to report in order to comply with the CSRD.

If you are uncertain about where to begin your CSRD reporting, the Greenomy CSRD Jump Start is the right path for you. In this 6-week programme, our team of regulatory, data, and sustainability experts guide you in preparing your organisation for its CSRD reporting. Ensure lasting compliance and benefit from personal guidance, training of your teams, specific action plans, and AI-powered ESG research. Explore Greenomy's innovative CSRD module to streamline data capture and reporting for long-term efficiency. Book a call for further details.

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