Starting in 2024, the Corporate Sustainability Reporting (CSRD) Directive will require all large companies to report on sustainability policy and performance. In April 2021, the European Commission presented a proposal for a Directive requiring mandatory reporting on the environmental and social impacts of business activities, as well as an independent guarantee on the non-financial information presented.

The directive aims to increase the quality of information and transparency on corporate sustainability issues, and thus support the transition to a sustainable economy following the Paris Climate Agreement and the EU Green Agreement. For many companies, the proposed CSRD timeframe means that they need to start preparing to be ready by 2024 and meet the CSRD commitments.

What is CSRD and to whom does it apply?

The CSRD is an extension of the existing European Sustainability Reporting Directive (NFRD). The NFRD came into force in 2018 and requires public interest entities (such as banks, insurers and public companies) with more than 500 employees to report on how they are dealing with issues such as environmental pollution, social responsibility, human rights and diversity.

CSRD significantly expands the scope of reporting materials. It will include all listed entities, as well as large companies that meet 2 of the following 3 criteria:

• More than 250 employees
• More than EUR 40 million net turnover
• More than € 20 million when reporting on financial position.

The latest indications are that CSRD reporting obligations will apply to at least 50,000 companies operating in Europe, but many companies below these thresholds are also expected to implement these requirements.

CSRD reporting requirements

The format and exact criteria of what the CSRD will require are still under development. However, it is very likely that the report must contain the following components:

• An annual report that will publish sustainability issues that are important to the company, which include, at the very least, environmental, social and employee issues, diversity in the company's management, respect for human rights, the fight against corruption and bribery. Disclosure of other substantive sustainability topics will be required to cover issues such as strategy, governance, policies, processes, systems, KPIs, results, and achievement of sustainability goals.
• Material sustainability topics will be based on the principle of double materiality - which risks and sustainability opportunities may result in financial significance for the company (eg lack of raw materials or interruptions in production due to extreme weather conditions, but also transitional risks such as reputational damage) and which material impacts has on people and the environment (such as loss of biodiversity or human rights violations in the value chain).
• Information on the company's long-term sustainability goals and progress towards those goals (not just the results in a given year).
• Reporting will be linked in line with other recent European regulations, for example, the Sustainable Financial Disclosure Regulation (SFDR) and the EU taxonomy.

In addition to the essential requirements, a limited certification of the report by the accountant is required, as well as the availability of the report in electronic (XHTML) format. These requirements are expected to make an important contribution to increasing the quality and comparability of sustainability reports.

Get ready in time!

In order to prepare for CSRD reporting from 2024 onwards, companies should now become familiar with CSRD and develop their sustainability strategy towards meeting the reporting requirements set out in the Directive. Conducting a gap analysis against CSRD requirements to estimate the amount of change that will be required will be crucial to this process. Companies will need to develop and set relevant policies and systems and develop their own framework of indicators in order to be able to manage their KPIs, benchmarks and targets.

An infographic with all the deadlines relevant to reporting, developed by our team in the Netherlands, can be found at the link.

Data source: Grant Thornton Global