The Corporate Sustainability Reporting Directive (CSRD)
What is the EU Corporate Sustainability Reporting Directive and how can you comply?
The past few years have witnessed a significant increase in interest and concern over the effect of human activity on the planet and its people. The Environmental, Social, and Governance (ESG) performance of companies is becoming the subject of guidelines, directives, and regulations in the European Union, North America, and Asia. The EU Corporate Sustainability Reporting Directive (CSRD) will introduce significant reporting requirements for companies that are based in the EU or are listed on European Stock Exchanges (including global businesses with operations in the EU).
Large companies in Europe have disclosed non-financial ESG information since the Non-Financial Reporting Directive (NFRD) came into effect in 2014. The CSRD quadruples the number of companies that will need to report, adds a level of audit or verification to the data that is reported, and most significantly, introduces the concept of “double materiality” to the evaluation of a company’s ESG risk evaluation and reporting. Compliance with the EU CSRD is mandatory.
The Corporate Sustainability Reporting Directive (CSRD) expands the requirements and sets a new common framework for reporting ESG aspects for both large businesses, as well as small and medium-sized ones. Legal entities that have already been subject to the NFRD will need to start reporting in a new format in 2025 on their 2024 data.
Who will need to comply with the CSRD?
Previously, only large public-interest entities with over 500 employees had to report their ESG data according to the NFRD’s standards. The number of companies concerned was estimated to be around 11,700. The CSRD will significantly increase the number of companies that will need to report their non-financial data by up to 50,000 companies, including small and medium-sized businesses.
Your company will need to comply if it meets at least two of the criteria:
More than 250 employees
€20M in total assets.
What are the key reporting elements that have been introduced with the CSRD?
Companies are to establish and communicate a clear vision of ESG roles and strategy, and assure resilience.
Companies will confirm their alignment with the EU Taxonomy Regulation, which specifies six environmental objectives:
- Climate change mitigation
- Climate change adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
Long-term sustainability targets
The CSRD sets a requirement for companies to establish long-term ESG goals, to lay out the transition plans to those goals, and to report annually on progress on those goals. These sustainability targets will be specific to their business model and strategy, and compatible with:
- the transition to a sustainable economy;
- the objective of limiting global warming to 1.5°C
- achieving climate neutrality by 2050, in line with the EU’s goals in the European Climate Law.
The reporting will be company-specific, while following reporting standards being developed by the European Financial Reporting Advisory Group (EFRAG). These 4 general standards and 9 sector-specific standards will initially be available in Q2 2023.
Double materiality approach
Previous non-financial reporting viewed risk to the company from the perspective of incoming risk (what could happen to the company if a given external event occurs, and how significant is that risk?). Double materiality asks companies to assess their ESG risk potential from the aspect of being both recipient (what could happen to the company) and also generator (what could happen to the planet, as a consequence of the company’s activity?). For more information about double materiality visit this page.
Companies will need to assess the sustainability and ESG impact of their production processes, which also include their suppliers' processes in their value chains. This process follows the draft Corporate Sustainability Due Diligence Directive (CSDD) which will require companies to identify and, if necessary, prevent, end, or mitigate adverse effects of their activities on the environment and human rights.
All the data will need to be submitted in an online format and included in the Management Report. Mandatory reporting on ESG aspects will start first for large enterprises that have been subject to NFRD. Small companies will have 3 years to comply. It is worthwhile to start reporting sooner rather than later.
Not sure where to start?
Discover our regulation readiness program.
The regulation is very extensive and you may need support with it. Our program will help you to kickstart preparation for the upcoming regulation. The program includes:
Readiness Report showing how your business processes, ESG, and supplier processes line up with the requirements of the regulation.
A technical gap analysis showing any gaps that you need to rectify to be compliant with the CSRD.
A knowledge base; an increased understanding of the wider context requirements and the environment surrounding them through knowledge transfer documents, workshops, and discussions.
A scaling-up roadmap, that will guide you through the steps you need to take before the regulation comes into full force in 2025.
Demos, documentation, and a video to showcase the project internally.
Get in touch to learn more about the program!
The Minespider's Product Passport is a blockchain-secured digital ID of your end product or material that contains all the key data along the supply chain.
Product Passport can collect and communicate important ESG data, information on carbon emissions and compliance data throughout a product’s entire lifecycle.