Broadly, companies will be required to report on similar topics to those specified in the NFRD: environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards.
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2022 was another seismic year in the ongoing shake-up of mandatory corporate sustainability reporting, culminating in the European Council giving its final approval to the long-anticipated corporate sustainability reporting directive (CSRD).
The new directive builds significantly on existing EU non-financial reporting requirements (known as the NFRD) and is an important part of both the European Green Deal and its Sustainable Finance Agenda, aligning corporate reporting to the EU’s transition to a sustainable economy by providing capital markets and other stakeholders with detailed, consistent and comparable information on sustainability within financial reports.
Who will be required to report under CSRD and when?
The CSRD is transformative in part due to its scope. The number of companies that will ultimately be required to report under the new directive will be far higher than under its predecessor which to date has focused its attention on large, listed entities, those with 500+ employees. Instead, the new rules will apply to all large, listed and non-listed EU companies, listed SME’s and non-European companies generating a net turnover of EUR 150 million in the bloc and which have at least one subsidiary or branch in the EU exceeding certain thresholds.
Ultimately, this will take the number of companies reporting on sustainability from some 12,000 to around 50,000, but it’s important to understand that reporting requirements will be phased in over time for different kinds of companies:
reporting in 2025 on the financial year 2024 for companies already subject to the NFRD;
reporting in 2026 on the financial year 2025 for large companies that are not currently subject to the NFRD;
reporting in 2027 on the financial year 2026 for listed SMEs; and
reporting in 2029 on the financial year 2028 for non-European companies meeting the criteria and thresholds summarised above.
What will companies be required to report on under CSRD?
The CSRD is equally transformative due to the information it will require companies to report. Broadly, companies will be required to report on similar topics to those specified in the NFRD: environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards.
However, additional requirements will apply. Most notably, companies will have to report how their business model impacts society and the environment as well as how external sustainability factors, including climate change, may affect their business over time – integrating the principle of double materiality for the first time.
These additional requirements will be reflected in new standards – the European Sustainability Reporting Standards (ESRS) – developed by the European Financial Reporting Advisory Group (EFRAG) that are considerably more prescriptive but will also provide more guidance to companies, removing some of the ambiguity that has existed previously.
The first set of draft standards published in November includes both general requirements and disclosures as well as topical standards according to the following areas:
Climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy
Own workforce, workers in the value chain, affected communities, consumers and end-users
Reassuringly, the proposals are highly aligned to both existing, established and forthcoming reporting frameworks including the draft international sustainability-related financial standards currently being developed by the ISSB, TCFD and GRI.
Keeping things simple
If you would like support with CSRD, the Ever team is on hand to provide advice and examples.
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