In a rapidly changing global landscape, the European Union is taking significant strides toward a sustainable future. The Corporate Sustainability Reporting Directive (CSRD) is at the forefront of these efforts, reshaping the way businesses report their sustainability practices and performances. In this blog, we’ll describe the key aspects of the CSRD, its implications, and what it means for businesses.
In June 2021, the EU Commission announced the adoption of the Corporate Sustainability Reporting Directive (CSRD), in line with the commitment made under the European Green Deal. These plans aim to transform the EU into a modern, liquid economy that works for people and delivers stability, jobs, growth and investment. The EU’s goal is to become the first economic bloc in the world to emit zero net mission by 2050.
The CSRD reporting is a game-changer, marking a shift in the importance of non-financial reporting on par with traditional financial reporting. Effective from the fiscal year 2024, this EU directive primarily targets the largest publicly traded companies, with its scope expanding in the coming years.
The CSRD include a set of 12 reporting standards, the European Sustainablity Reporting Standards (ESRS). These will steer companies in their reporting. The first two standards are of a general nature and encompass fundamental principles, dictating what needs to be reported regarding strategy, governance, and materiality-related decisions. The remaining 10 standards pertain to various ESG aspects.
Within the framework of the CSRD, the requirement for adherence is applicable to firms that fulfill a minimum of two of the subsequent criteria.
This expanded scope means that ultimately over a thousand companies in the Netherlands, including subsidiaries of non-EU entities, will fall under the CSRD’s purview. Non-EU companies with consolidated EU revenues exceeding €150 million will adhere to a special disclosure regime.
Sustainability reporting will be a mandatory and integrated section within the annual report. This information must follow designated formats, include tags, and be presented in electronic format (XBRL). Additionally, it must be accompanied by an assurance statement provided by an external auditor. These stipulations are designed to elevate the quality, dependability, transparency, and comparability of ESG (Environmental, Social, and Governance) data, placing it on the same level as financial reporting.
The CSRD marks a significant transformation in corporate reporting, calling for thorough preparations. Businesses must adjust to this evolving landscape and welcome the era of sustainability reporting as a crucial step in their dedication to a sustainable future.
The CSRD requires companies to reveal their sustainability strategies, linked goals, policies, measures to achieve these objectives, and the procedures for tracking and reporting progress. These particulars should be integrated into the annual report, following the newly introduced reporting standards (ESRS’s).
The CSRD introduces a gradual implementation approach that impacts different categories of businesses:
While the CSRD’s introduction has been delayed by a year compared to initial proposals, the timeline remains tight. Large publicly traded companies, previously under the NFRD, have until 2023 to prepare for reporting in accordance with CSRD standards, which take effect in 2024.
No, not all companies are prepared for it at this point. While the SCRD has already positioned listed companies for the changes starting next year, they are still far from being fully ready. Research indicates that companies still have a significant amount to grasp regarding the new European reporting regulations and the strategies for addressing them.
We will keep you informed on the latest developments around the SCRD.
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