Understanding CSRD Reporting Scope
When it comes to determining which activities of your company to include in your CSRD reporting, it's essential to consider your company's structure and obligations.
Here's a comprehensive guide to help you navigate this process.
0. Understand CSD eligibility general criteria
You can read this article to know more about this and use this tool to check your company's CSRD compliance.
In a nutshell, our company is likely subject to CSRD if it meets any of the following criteria:
Size: Large companies with more than 500 employees
Listing status: Publicly listed companies
Financial thresholds: revenue > 40M€ and/or balance sheet > 20M€
1. Alignment with Financial Reporting
The most important rule for scope definition: as CSRD's final goal is to propose extra-financial reporting structure as accurate and framed as financial reporting, the scope to apply should be the same for CSRD as for the current financial reporting scope of the company.
2. Group-Level Reporting
If your company meets the CSRD criteria on a consolidated basis, you are required to report on the entire group's financial and non-financial performance. This means:
The whole group's activities are subject to CSRD reporting, regardless of individual entity sizes within the group.
You cannot avoid reporting by breaking down reporting at the entity level if the group as a whole meets the CSRD criteria.
3. Consolidated Sustainability Report
If your group meets the CSRD criteria, you must prepare and publish a consolidated sustainability report that covers:
The entire group's activities
All entities within the group, regardless of their individual size or CSRD eligibility
4. Entity-Level Considerations
For individual entities within a larger group:
Entities that don't meet CSRD thresholds individually but are part of a CSRD-eligible group will not need to report separately.
However, their data and performance will be included in the group's consolidated report.
5. Subsidiary Exemptions
Subsidiaries may be exempted from individual CSRD obligations if:
The parent company produces a consolidated sustainability report conforming with CSRD.
This exemption applies even to subsidiaries that are public interest entities unless they reach the large company thresholds.
6. Non-EU Companies
Under the CSRD, “Having significant activities” for non-EU companies refers to criteria that determine whether a company based outside the European Union (EU) is subject to this directive because of its operations in the EU. Here is what this means:
Context of the CSRD: the CSRD is a directive adopted by the EU to strengthen reporting obligations on sustainability (environmental, social, and governance - ESG) aspects. It applies to large companies or those that have a significant economic presence in the EU, even if they are based outside the EU.
Definition of significant activities: for non-EU companies, this means that they meet certain economic or operational criteria that show that they have a substantial presence in the EU.
In particular:
1) Revenues generated in the EU:
If the company generates more than €150 million in annual net sales in the EU over two consecutive financial years, it is considered to have significant activities.
2) Subsidiaries or branches in the EU:
If the non-EU company has one or more subsidiaries or branches in the EU that themselves meet the reporting criteria (e.g. a subsidiary exceeds certain financial thresholds), the parent entity may be required to report.
3) Group requirement:
Suppose a subsidiary or branch in the EU exceeds the thresholds imposed by the CSRD (e.g. employing more than 250 employees, a balance sheet total exceeding €20 million, or revenues exceeding €40 million). In that case, this may also mean that the non-EU company has significant activities in the region.
Practical implications
Non-EU companies with significant activities in the EU will need to:
Prepare a consolidated sustainability report for their EU operations.
Follow the European Sustainability Reporting Standards (ESRS), which detail the ESG reporting requirements.
Publish this information in alignment with European standards.
Why this requirement?
The aim is to ensure that all companies with a significant economic influence on the European market contribute to the EU's transparency and sustainability commitments, regardless of where they are headquartered.
For companies based outside the EU:
Non-EU companies may be subject to CSRD if they have significant activities in the EU.
At a minimum, a non-EU company may be subject to CSRD reporting based on its European activities only (by 2026)
The reporting obligation would expand to the whole group (world activities) if the company generates over €150 million annually in the EU and meets additional criteria detailed in our other resources.
7. Determining Reporting Perimeter
To define your reporting perimeter:
Assess your company's structure, including all subsidiaries and joint ventures.
Determine your current reporting practices for financial reporting, and how it can be directly applied to your extra-financial reporting
Evaluate the significance of each entity's activities in relation to the group's overall sustainability impact.
Any doubt about your eligibility? Use our tool to find out what you need to do!
Conclusion
Remember, the goal of CSRD is to provide a comprehensive view of your company's sustainability performance. When in doubt, it's better to include more information rather than less. By carefully considering your company's structure and activities, you can ensure that your CSRD reporting is both compliant and reflective of your true sustainability impact.