CSRD: Corporate Sustainability Reporting Directive

Overview

The Corporate Sustainability Reporting Directive (CSRD) is a landmark EU regulation that significantly expands ESG disclosure requirements for companies. It replaces the Non-Financial Reporting Directive (NFRD) and introduces more detailed, standardized, and auditable sustainability reporting.

Key Requirements

Scope

The CSRD applies to:

• Large companies: Meeting 2 of 3 criteria (250+ employees, €50M revenue, €25M assets)
• Listed SMEs: Except micro-enterprises (with opt-out until 2028)
• Non-EU companies: With €150M+ EU revenue (from 2028)

Timeline

• 2024: Apply to companies already under NFRD
• 2025: Apply to other large companies
• 2026: Listed SMEs begin
• 2028: Non-EU companies with EU subsidiaries

ESRS Standards

What Are ESRS?

European Sustainability Reporting Standards (ESRS) provide detailed disclosure requirements:

• Cross-cutting: Governance, strategy, impacts, risks/opportunities
• Sector-agnostic: Apply to all companies
• Sector-specific: Additional standards by industry (future)

Disclosure Areas

Double Materiality

Concept

Companies must report on:

1. Financial materiality: ESG issues affecting company performance
2. Impact materiality: Company's impacts on people and environment

Assessment Process

• Identify stakeholders
• Assess actual/potential impacts
• Evaluate financial risks and opportunities
• Determine material topics

Practical Guidance

Steps to Prepare

1. Gap analysis: Compare current reporting to ESRS
2. Data collection: Establish systems for required metrics
3. Governance: Assign board and management responsibility
4. Assurance: Plan for limited reasonable assurance

Required Disclosures

• Strategy: How sustainability issues affect business model
• Targets: Time-bound, science-based where applicable
• Metrics: Quantitative data using ESRS standards
• Transition plans: Climate transition plans for large companies

Key Takeaways

• CSRD significantly expands ESG reporting scope
• Double materiality is central concept
• ESRS provides detailed disclosure standards
• Assurance requirements increasing
• Non-EU companies also affected
• Preparation should begin now