What is the Corporate Sustainability Reporting Directive (CSRD)?
The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation aimed at standardizing sustainability reporting across companies. It expands on the previous Non-Financial Reporting Directive (NFRD) by requiring more detailed and comparable disclosures on environmental, social, and governance (ESG) issues.
Who Needs to Comply with CSRD?
CSRD applies to a wide range of companies, including:
Micro-Undertakings
Smallest companies that meet at least two of these criteria:
Balance sheet total ≤ €450,000
Net turnover ≤ €900,000
Average employees ≤ 10
Small and Medium Enterprises (SMEs)
Companies that meet at least two of these criteria:
Balance sheet total ≤ €25 million
Net turnover ≤ €50 million
Average employees ≤ 250
Large Undertakings
Companies that exceed at least two of these criteria:
Balance sheet total > €25 million
Net turnover > €50 million
Average employees > 250
Large Groups
Groups of companies that, on a consolidated basis, exceed at least two of these criteria:
Balance sheet total > €25 million
Net turnover > €50 million
Average employees > 250
When Does CSRD Reporting Begin?
CSRD reporting starts in phases:
From 2025 for large public-interest entities (PIEs) with more than 500 employees.
From 2026 for other large companies.
From 2027 for listed SMEs (reporting will be voluntary until then).
When will the assurance standards be introduced?
Your CSRD report will be assessed by an auditor, and the type of assurance standard your company will be assessed on depends on the type of organisation your company falls into:
Limited Assurance Standard
Applicable to: All companies within the scope of the CSRD during the initial phase of reporting.
Timeline: To be adopted by 1 October 2026.
Description: Limited assurance focuses on evaluating whether the sustainability information is plausible, with a lower level of scrutiny compared to reasonable assurance.
Reasonable Assurance Standard
Applicable to: All companies under the CSRD, transitioning from limited assurance after the initial phase.
Timeline: To be adopted by 1 October 2028.
Description: Reasonable assurance involves a more thorough examination, providing a higher level of confidence in the accuracy and completeness of sustainability disclosures.
IAASB International Standard on Sustainability Assurance (ISSA) 5000
Applicable to: Likely to be aligned with global assurance requirements for large undertakings and large groups, particularly those operating across multiple jurisdictions.
Timeline: Effective from 15 December 2026.
Description: A globally harmonized standard designed to provide consistent assurance practices for sustainability reporting.
What Are the Key Reporting Requirements Under CSRD?
Companies must report on:
Double Materiality: Impact of business activities on the environment and society, and how sustainability issues affect financial performance.
Mandatory ESG Disclosures: Covering areas like climate change, resource use, biodiversity, employee conditions, human rights, and governance practices.
Assurance: Reports must be subject to limited assurance by an independent auditor.
Digital Reporting: Sustainability information must be submitted in a digital, machine-readable format.
How Do Companies Conduct a Double Materiality Assessment?
A Double Materiality Assessment involves:
Identifying ESG issues that are material to the company’s business and stakeholders.
Evaluating both the financial impact of ESG risks and the company’s impact on society and the environment.
Engaging with stakeholders to validate the findings.
What Are the Benefits of Complying with CSRD?
Regulatory Compliance: Avoids penalties and ensures alignment with EU sustainability goals.
Increased Transparency: Builds trust with stakeholders by providing clear and accurate ESG information.
Better Risk Management: Identifies and manages sustainability risks effectively.
Enhanced Reputation: Demonstrates a commitment to responsible business practices, attracting investors and customers.
What Are Some Best Practices for CSRD Compliance?
Start Early: Begin preparing for CSRD compliance well in advance of the reporting deadlines.
Use Standard Frameworks: Align with frameworks like GRI, TCFD, and SASB, which can help structure your sustainability reporting.
Implement Robust Data Collection Systems: Ensure accurate and consistent data collection for ESG metrics.
Engage Stakeholders: Regularly consult with stakeholders to understand their expectations and gather input.
Seek Third-Party Assurance: Use independent auditors to validate your ESG reports and build credibility.
How Can Technology Help with CSRD Reporting?
Data Management Tools: Use software to track, manage, and report on ESG data efficiently.
Digital Reporting Solutions: Implement platforms that support the required digital format for CSRD disclosures.
Automation: Automate data collection and analysis processes to reduce errors and save time.
Where Can I Get Help with CSRD Compliance?
For additional support with CSRD compliance, reach out to ESG consulting firms, use digital reporting platforms, or contact the KEY ESG team via in-app chat or email at support@keyesg.com.
Conclusion
Understanding and complying with CSRD is crucial for companies operating in or interacting with the EU market. By following best practices and leveraging technology, companies can ensure compliance, enhance transparency, and contribute to a sustainable future.