The Corporate Sustainability Reporting Directive (CSRD) is a European regulation aimed at enhancing the transparency and consistency of sustainability reporting. It impacts businesses by requiring them to disclose relevant and detailed information on their sustainability practices, ensuring stakeholders are well-informed about the company’s environmental, social, and governance (ESG) activities.
The CSRD applies to large companies that are publicly listed in the EU, as well as listed and non-listed companies that meet certain size criteria (e.g., balance sheet total, net turnover, number of employees). It’s designed to bring more transparency into the market and provide stakeholders with reliable sustainability information.
The primary goals of the CSRD include increasing sustainability transparency for investors and other stakeholders, strengthening corporate accountability on ESG issues, and supporting the green transition of the European economy.
Companies are required to prepare and publish sustainability reports that follow the European Sustainability Reporting Standards (ESRS), detailing their impact on issues such as climate, environment, and social matters. These reports must be verified by an independent auditor.
A CSRD Auditor assesses and verifies the accuracy and completeness of a company’s sustainability reporting. This involves evaluating the company’s processes, controls, and data related to their environmental, social, and governance (ESG) practices, ensuring that the reporting meets the standards set forth by the CSRD.
The ESRS are a set of sustainability reporting standards developed to support the implementation of the CSRD. They provide a clear and detailed framework for companies on how to report sustainability information.
The ESRS cover a wide range of sustainability topics, including but not limited to climate change, biodiversity, pollution, circular economy, human rights, and social issues. This ensures a comprehensive reporting of companies’ ESG impacts.
The ESRS aim to standardize sustainability reporting, making it more comparable, reliable, and clear for all stakeholders. This helps to reduce information fragmentation and improve the quality of reported data.
Sustainability reporting helps businesses identify and communicate their environmental and social impacts. It can enhance company’s reputation, improve stakeholder trust, uncover opportunities for savings and efficiencies, and drive sustainable innovation. Additionally, it helps in aligning business strategy with global sustainability goals.
The requirement to follow the ESRS will be phased in, starting from the financial year 2024 for companies already subject to the Non-Financial Reporting Directive (NFRD), with further implementation phases for other companies in the following years.
Preparing for a CSRD audit involves several steps: ensuring your sustainability reporting is in line with CSRD requirements, implementing robust data collection and management processes, and establishing clear ESG objectives and strategies. It’s also advisable to conduct internal audits to identify any areas of improvement before the external CSRD audit takes place.
The CSRD represents an expansion and strengthening of the NFRD’s requirements, aiming to increase the scope and detail of sustainability information that companies need to report. Unlike the NFRD, the CSRD demands more comprehensive reporting, adherence to standardized ESRS, and applies to a larger number of companies.
Compliance with the CSRD can enhance a company’s reputation, attract sustainability-conscious investors, and improve risk management. It encourages transparency and accountability, helping companies to identify and capitalize on sustainable opportunities and to mitigate environmental and social risks.
Yes, member states of the European Union will establish and enforce penalties for non-compliance with the CSRD. These penalties will vary by country but are intended to ensure that companies take their reporting obligations seriously.
Yes, the ESRS are expected to evolve to reflect emerging sustainability issues, changes in regulation, and advancements in reporting practices. This ongoing updating process will ensure that the standards remain relevant and effective in promoting transparency and accountability.
Companies can prepare by familiarizing themselves with the ESRS requirements, assessing their current sustainability reporting practices, and identifying any gaps. Engaging with stakeholders, including investors, employees, and customers, to understand their expectations can also guide the preparation process.
By standardizing sustainability reporting across the EU, the ESRS contribute to global sustainability goals by enhancing the comparability and reliability of sustainability information. This facilitates better decision-making by investors, policymakers, and other stakeholders, supporting the global transition to a sustainable economy.
