Corporate Sustainability Reporting Directive (CSRD)

Some companies already comply with the Non-Financial Reporting Directive (Directive 2014/95/EU). It holds the rules for the disclosure of non-financial information of specific large companies. In April 2021, the EU Commission agreed to expand this Directive to small and medium- sized enterprises (SMEs), which resulted in the proposal of the CSRD as an amendment to the NFRD. This proposal was ratified by the Commission and is currently being amended to include detailed reporting standards.

According to the European Commission, the NFRD requires large companies with 500 or more employees to disclose information on the following topics:

• Environmental impacts
• Social matters, the treatment of employees and working conditions for employees
• Respect for human rights
• Mitigation of corruption and bribery
• Diversity on the company board (concerning age, gender, educational and professional background)

What exactly will change with the CSRD?

Enforcement of the CSRD will usher in a new era of sustainability reporting, with an expanded scope and sharper focus on businesses’ impacts. The CSRD will outline a comprehensive reporting framework and specific guidelines on what and how to report. The new Directive is anticipated to enter into force starting from financial year 2024 and reporting will be required beginning 2025 for companies already reporting under the NFRD. Reporting for all other large companies begins in 2026. SMEs with at least 250 employees will also be required to disclose their sustainability performance and activities starting in 2027.

The CSRD will also require independent assurance of the sustainability report and metrics. At first, a limited assurance effort is sufficient but in the long run reasonable assurance is anticipated to be required. Thus, the CSRD will hold companies to the same standard of reporting when it comes to the sustainability of their operations and products, in turn creating a market where it is much more difficult to issue vague or green- washed performance claims. Finally, the CSRD will introduce corresponding sanctions for violations of the established reporting process.

How can you prepare for CSRD?

In conclusion, the new reporting Directive will be another major step toward the alignment of sustainability reporting standards with financial reporting standards. Companies who are emerging leaders in sustainability as well as those companies who were early adopters of ESG are all recommended to familiarize themselves with the new upcoming requirements, as they entail significant changes and challenges.

Gather stakeholders, experts and perspectives in order to address these emerging requirements, because sustainability is increasingly becoming an indispensable part of a corporate report and business itself.