Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD – Directive (EU) 2022/2464) is a Directive introduced by the European Commission that requires private and public European companies, as well as non-EU companies with substantial presence in the European Union, to report on the impact of their activities on the environment and society and requires the audit of the reported information.
The CSRD amends the existing Non-Financial Reporting Directive (NFRD) and broadens its reporting requirements.
Companies subject to the CSRD must report according to European Sustainability Reporting Standards (ESRS). The ESRS are a set of standards defining the subjects and metrics that businesses must cover in their sustainability reports.
The first set of ESRS standards covers sector-agnostic topics such as climate change (ESRS E1), water and marine resources (ESRS E3), biodiversity and ecosystems (ESRS E4), workers in the value chain (ESRS S2), and business conduct (ESRS G1). Additionally, the ESRS widen companies’ reporting requirements by including the whole value chain and introducing the double materiality concept. The standards also greatly impact the extent, volume, and granularity of the information that must be provided.
The draft standards are developed by the European Financial Reporting Advisory Group (EFRAG).
By extending the scope of the NFRD, the CSRD aims to provide a uniform standardised format for companies to report both on:
- The impact the external world (environmental, social and governance issues) has on the companies’ business activities and financials (outside-in perspective);
- The impact the business activities of a company have on the external world (inside-out perspective).
These two perspectives are commonly referred to as “double materiality”.
By developing this reporting standard, the EU seeks to increase the data available for, amongst others, Financial Market Participants (FMPs) who rely on the information provided by companies to fulfil their disclosure requirements.
The CSRD applies to private and public European companies and non-EU companies that maintain operations within the EU.
Whether a company is in the scope of the CSRD depends on certain characteristics[1]:
- EU-based companies which have been in scope of the NFRD
- EU-based companies exceeding two of the following three criteria on two consecutive balance sheet dates (Large undertakings):
- 250 employees
- €50M net turnover
- €25M balance sheet
- EU-based small and medium-sized companies (SMEs) which are listed and meet two of the following three criteria:
- >10 but <250 employees
- >€900k but <€50M net turnover
- >€450k but <€25M balance sheet
- Non-EU companies or groups that generate >€150M turnover in the EU in each of the last two years with either:
- A listed EU-subsidiary or an EU-subsidiary considered as a “large undertaking”; or
- An EU subsidiary/branch with a net turnover exceeding €40M.
Under the Omnibus proposal, the characteristics to define whether companies are in scope of the CSRD or not would vary significantly:
- For companies in scope of the NFRD and large EU-based undertakings the criteria for the number of employees would be increased to a mandatory threshold of at least 1000
- EU-based listed SMEs would completely drop out of scope
For non-EU undertakings to be considered in scope, they would have to generate more than €450M turnover in the EU in each of the last two years with either a listed/large EU undertaking or with an EU subsidiary with a net turnover exceeding €50M.
[1] On 17 October 2023, the European Commission adopted a delegated directive amending Directive 2013/34/EU (Reference: C(2023) 7020). The purpose of these amendments is to adjust the thresholds for determining a company’s size category. In particular, the delegated directive provides for a 25% increase in the balance sheet and net turnover thresholds in order to take account of the effects of inflation. Adoption of the delegated directive is scheduled for the fourth quarter of 2023.
Financial companies are captured by the CSRD depending on their size, as it happens with non-financial companies. A financial company that falls within the scope of the CSRD will have to report information on a collection of ESG aspects as defined in the European Sustainability Reporting Standards (ESRS) in a dedicated section of its annual management report which will be part of the statutory audit.
In addition, considering that under the Sustainable Finance Disclosure Regulation (SFDR), certain financial companies (referred to as financial market participants – FMPs) are required to provide specific information related to their financial products and the underlying investments, the CSRD is expected to increase the availability of ESG data for FMPs.
In short, FMPs need to evaluate the direct impact that the CSRD will have on their operations. Additionally, they must make necessary preparations for collecting and processing data from the companies they have invested in.
The design of the ESRS is aligned with the European Green Deal and incorporates existing sustainability frameworks, standards, and regulations, including the SFDR and the EU Taxonomy Regulation (EU Taxonomy).
Art. 8 of the EU Taxonomy states that financial and non-financial companies subject to the CSRD must disclose sustainability metrics about their economic activities. In particular, they must incorporate the proportion of their turnover, capital expenditures (CapEx), and operating expenditures (OpEx) that align with the EU Taxonomy into their CSRD reports, among other requirements.
Under the new Omnibus proposal, large undertakings with more than 1000 employees and a net turnover exceeding €450 million must disclose these metrics. Undertakings with a net turnover between €50 and €450 million can disclose voluntarily. Additionally, the reporting templates will be simplified, reducing data points by almost 70%. Visit the Taxonomy Regulation for more information.
Moreover, as stated in recital 33 of the SFDR Regulatory Technical Standards (SFDR-RTS), FMPs subject to the SFDR are also required to disclose Taxonomy-based metrics and provide disclosures for their ESG financial products in the SFDR disclosure templates. FMPs will depend on the information from the CSRD reports of the companies they invest in to obtain the necessary Taxonomy figures. Hence, the CSRD holds significance for the SFDR as it provides some of the information that needs to be disclosed in the SFDR disclosure templates. Visit SFDR for more information.
The CSRD has not been transposed into Luxembourgish law yet. On 29 March 2024, Bill of Law 8370 was submitted to the Luxembourg Chamber of Deputies to implement Directive (EU) 2022/2464 into national law.
The current efforts of transposing the Bill into national law have been postponed due to the anticipated changes under the Omnibus proposal.
Regulatory dates:
- 14 December 2022: The CSRD was adopted;
- 05 January 2023: The CSRD entered into effect;
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01 January 2024: Application date of the CSRD;
- 06 July 2024: Deadline for Member States to implement the CSRD requirements into national law;
- 30 June 2026: Expected adoption of the Delegated Act with the sector-specific standards.
Exact dates when the companies will have to issue their first report depend on the company type (visit the “To whom does it apply?” part for more information):
- 2025: EU-based companies in scope of the NFRD must report for the financial year 2024 (first wave);
- 2026: EU-based companies qualifying as “large undertakings” must report for the financial year 2025 (second wave);
- 2027: EU-based small and medium-sized listed companies must report for the financial year 2026 (third wave);
- 2029: Non-EU companies in scope of the CSRD must report for the financial year 2028 (fourth wave).
- April 2021: The European Commission issued a proposal for the CSRD to amend the reporting requirements of the NFRD;
- 16 December 2022: The final text of CSRD was published in the Official Journal of the European Union;
- 05 January 2023: The CSRD entered into effect;
- Q3 2023: Expected adoption of the Delegated Act with first set of ESRS;
- 31 July 2023: The EU Commission adopted the Delegated Act with the first set of ESRS;
- 17 October 2023: The European Commission approved a Delegated Directive to adjust size categories to account for inflation. The Delegated Directive is set for adoption by the European Parliament and the EU Council in Q4 2023;
- 21 December 2023: The Delegated Act (EU) 2023/2775 amending Directive 2013/34/EU was published in the Official Journal of the EU, entering into force on 24 December 2023. The Delegated Act adjusts the size categories to account for inflation;
- 06 July 2024: Deadline for member states to transpose the requirements of the CSRD into national law.
- 26 February 2025: The European Commission published Omnibus proposals to reduce sustainability disclosure requirements and administrative burdens as part of its plan to strengthen competitiveness and boost growth in the EU.
In the meantime, the European Financial Reporting Advisory Group (EFRAG) is tasked with developing the European Sustainability Reporting Standards (ESRS). The reporting standards will be adopted through different delegated acts by the European Commission. The main dates regarding the ESRS are:
- 09 June 2023: Issuance of the draft Delegated Act, including set 1 reporting standards;
- 07 July 2023: End of the 4-week feedback period opened by the European Commission on the draft Delegated Act;
- 25 October 2023: EFRAG launched its Q&A platform on the ESRS. The purpose is to collect questions from undertakings and provide technical advice on the ESRS. These responses will not be legally binding nor formally adopted by the European Commission;
- 25 October 2023: EFRAG published a draft Excel list containing the ESRS data points(2). This file was published together with a new version of guidance on materiality assessment and value chain.
- 31 May 2024: EFRAG published three final Implementation Guidance documents following public feedback: EFRAG IG Materiality Assessment, EFRAG IG 2 Value Chain and EFRAG IG 3 ESRS Datapoints.
The next sector-specific sets of the ESRS are expected to be issued according to the proposal 2023/0368 published the 17th October 2023 as follows:
- November 2025: EFRAG will deliver its technical advice for sector-specific standards to the European Commission.
- Based on the current Omnibus proposal, sector-specific ESRS will not be adopted. Therefore, this last date may not be valid anymore.
Notes:
(2) The list is intended to provide non-legally binding application guidance for the implementation of the ESRS requirements. It can also help with the mandatory digital certification of sustainability disclosures. Further information on this draft Excel list can be found online (refer to useful link session below).
Currently, there is no consultation open or pending.
- NFRD – Directive 2014/95/EU amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups Text with EEA relevance
- CSRD – Directive (EU) 2022/2464 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting
- Adopted Delegated Act for the first set of European Sustainability Reporting Standards
- Commission Delegated Directive (EU) 2023/2775 of 17 October 2023 amending Directive 2013/34/EU of the European Parliament and of the Council as regards the adjustments of the size criteria for micro, small, medium-sized and large undertakings or groups
- Luxembourg Bill of Law 8370 (draft)
- Omnibus: Proposal for a Directive of the European Parliament and of the Council amending Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2464 and (EU) 2024/1760 as regards certain corporate sustainability reporting and due diligence requirements
FAQ:
- EFRAG ESRS Q&A Platform
- EFRAG ESRS Implementation Q&A Platform Explanations 2/2024
- EFRAG SRB Meeting 25 October: (Draft) List of ESRS datapoints – Implementation Guidance (see agenda item 05-02), materiality assessment (see agenda items 03), and value chain (see agenda items 04)
- EFRAG Final Implementation Guidelines on: Materiality Assessment, Value Chain, and detailed ESRS Datapoints and accompanying Explanatory Note
- Commission notice (C/2024/6792) Commission Notice on the interpretation of certain legal provisions in Directive 2013/34/EU (Accounting Directive), Directive 2006/43/EC (Audit Directive), Regulation (EU) No 537/2014 (Audit Regulation), Directive 2004/109/EC (Transparency Directive), Delegated Regulation (EU) 2023/2772 (first set of European Sustainability Reporting Standards, ‘first ESRS delegated act’), and Regulation (EU) 2019/2088 (Sustainable Finance Disclosures Regulation, ‘SFDR’) as regards sustainability reporting
