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 G2). 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.

It is foreseen that other three sets of ESRS standards will be developed to address reporting requirements specific to different sectors. The second set of standards is under development and is expected to cover sectors such as oil and gas, road transport, food and beverage, and textiles, accessories, footwear and jewellery.

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 on:

• The impact the external world (environmental, social and governance issues) has on the companies’ business activities and financials (outside-in perspective), and
• 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
  • €40M net turnover
  • €20M 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
  • >€700k but <€40M net turnover
  • >€350k but <€20M 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.

Notes:

(1) Considering this, the CSRD will apply to roughly 50,000 companies (compared to 11,000 in the scope of the NFRD) in the European Union.

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. As a result, future CSRD reports of large companies will include essential figures and information based on the EU Taxonomy. 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.

Regulatory dates

• 14 December 2022: The CSRD was adopted.
• 05 January 2023: The CSRD entered into effect.
• 01 January 2024: Application date of the CSRD.
• 06 July 2024: Deadline for Member States to implement the CSRD requirements into national law.

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.
• 2026: EU-based companies qualifying as “large undertakings” must report for the financial year 2025.
• 2027: EU-based small and medium-sized listed companies must report for the financial year 2026.
• 2029: Non-EU companies in scope of the CSRD must report for the financial year 2028.

• 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.
• 01 January 2024: Application date of the CSRD.
• 06 July 2024: Deadline for member states to transpose the requirements of the CSRD into national law.

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.

The next sector-specific sets of the ESRS are expected to be issued as follows:

• November 2023: Adoption of Set 2 standards.
• November 2024: Adoption of Set 3 standards.
• November 2025: Adoption of Set 4 standards.

Currently, there is no consultation open or pending.

• NFRD – Directive 2014/95/EU amending Directive 2013/34/EU regarding 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 regarding corporate sustainability reporting
• First set of European Sustainability Reporting Standards – Draft
• Adopted Delegated Act for the first set of European Sustainability Reporting Standards