Corporate Sustainability Reporting Directive (CSRD)

Overview

The Corporate Sustainability Reporting Directive (CSRD) was adopted by the EU Commission in July 2023, replacing the Non-Financial Reporting Directive (NFRD). The CSRD increases the scope of the NFRD and introduces mandatory third-party assurance for sustainability reporting. It aims to standardise sustainability metrics, mandate corporate sustainability disclosures and increase transparency.

Adoption 

Companies that fall under scope of the CSRD will have to report to the European Sustainability Reporting Standards (ESRS). The standards were developed by the European Financial Reporting Advisory Group (EFRAG), an independent body tasked with advising the European Commission. These standards are built around EU policies, while taking into account and contributing to international standardisation initiatives.

Scope

1. Large EU companies with:

•  250+ employees;
•  €20+ million in total assets;
• or €40+ million in turnover

2. Parent companies incorporated in an EU member state, where the group of companies collectively meet the large company criteria

3. Non-EU incorporated companies:

• The company carries on substantial activity in the EU, meaning the company’s net turnover in the EU in two consecutive financial years was over €150 million per annum
• The company has at least one branch in the EU that has a net turnover of at least €40 million; or subsidiary in the EU that meets at least two of the large company requirements;
• Companies listed on an EU-regulated market, including small and medium-sized companies (SMEs) but excluding micro companies

4. Captive insurance and reinsurance undertakings

5. Small and non complex institutions, provided they also qualify as large companies or SMEs

Why it Matters

The CSRD is the first mandatory ESG standard that requires assurance on sustainability information. The incoming regulations will guarantee that investors and other interested parties can readily access the data necessary for evaluating the influence of companies on both society and the environment. Additionally, investors will have the means to gauge financial risks and opportunities linked to climate change and other sustainability matters. 

Reporting Process

Prior to responding to the ESRS, companies are required to complete a Double Materiality Assessment. This means that a reporting entity must consider both environmental impact materiality and financial materiality when identifying the material topics to be disclosed under the ESRS. The CSRD report must be included in a company’s management report rather than in a separate sustainability report. The first companies will have to apply the new rules for the first time in the 2024 financial year, for reports published in 2025.

Alignment with other frameworks

• GRI: The ESRS standards were developed by EFRAG using GRI as a reference point, basing many of the requirements off of those in the GRI standards.

• ISSB: The ESRS standards were developed in parallel with IFRS S1 & S2, ensuring a high degree of alignment and interoperability.

CSRD with Nossa Data

Nossa Data can assist companies to prepare a gap analysis for the upcoming regulation to ensure all material topics relating to the entity are being disclosed. Clients can disclose to the ESRS using the Nossa Data platform. In addition, clients have in platform access to a simplified guidance on overarching, sub and application requirements on a question by question basis.

Start your CSRD Journey with Nossa Data

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Sources:

• ‍https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en#legislation ‍
• https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FMeeting%20Documents%2F2307280747599961%2F06-02%20Materiality%20Assessment%20SRB%20230823.pdf ‍
• https://ec.europa.eu/commission/presscorner/detail/en/qanda_23_4043