Introduction to the Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) is a pivotal regulation introduced by the European Union (EU) aimed at improving transparency and accountability in corporate sustainability reporting. The CSRD builds on the existing Non-Financial Reporting Directive (NFRD) and mandates standardised reporting on environmental, social, and governance (ESG) factors for companies operating within the EU. This blog will help businesses understand CSRD, how it differs from NFRD, and how to prepare for compliance.

What is the CSRD?

The CSRD is designed to increase the availability of reliable and comparable ESG data across all industries. By establishing mandatory sustainability reporting standards, the CSRD enables investors, regulators, and the public to make informed decisions about the sustainability practices of businesses. It also supports the EU’s broader goal of reaching net-zero emissions by 2050.

CSRD vs. NFRD: Key Differences

Who is Affected by the CSRD?

Under the CSRD, the following entities are required to report their sustainability activities:

• Large companies meeting at least two of the following criteria:
  • Over 250 employees
  • Turnover exceeding €40 million
  • Total assets exceeding €20 million
• Listed SMEs, excluding micro-enterprises
• Parent companies must report for their entire group

These companies will need to provide information on how sustainability issues affect their business and how their operations impact people and the environment.

What Needs to be Reported?

The CSRD requires disclosure across a wide range of sustainability topics, including:

• Environmental Factors:

  • Climate change mitigation and adaptation

  • Resource use and circular economy practices

  • Pollution, biodiversity, and ecosystems

• Social Factors:

  • Equal opportunities (gender equality, diversity)

  • Working conditions (health and safety, fair wages)

  • Respect for human rights

• Government Factors:

  • Business ethics and anti-corruption

  • Corporate governance structures

  • Risk management and internal controls

Timeline for CSRD Implementation

The CSRD is being implemented in a phased approach based on company size and market listing status. Below is the timeline:

(A CSRD Implementation Timeline)

The First phase: 1st January 2024 

Large companies with over 500 employees that are already subject to the Non-Financial Reporting Directive (NFDR).

The “first-phase” companies must start reporting according to the CSRD requirements for the 2024 fiscal year, with the report to be published in 2025. 

The Second phase: 1st January 2025

From this phase on, the first set of companies that weren’t previously subject to the NFDR will need to comply with the CSRD requirements. This applies to large companies that meet at least two out of three specified requirements:

• More than 250 employees and/or
• 40 million EUR in turnover and/ or
• 20 million EUR in total assets

Companies in the second phase will have to start reporting according to the CSRD requirements in 2025, with the reports to be published in 2026​.

The Third phase: 1st January 2026

From the 1st of January 2026, the CSRD will also be applied to small and medium-sized  enterprises (SMEs) listed on EU-regulated markets that exceed at least two  of these thresholds :

• more than 10 employees
• more than 700 000 EUR in net turnover
• more than 350 000 EUR in total  assets
  
  

SMEs and other small and non-complex institutions must implement the CSRD and align to the ESRS from the financial year 2026. However, they will have the option to opt out of the reporting rules until 1st January 2028.

CSRD will not cover enterprises with less than 10 employees or below 2 million EUR.

The Fourth phase: 1st January 2028

From the 1st of January 2028, CSRD will be applied to non-EU-country companies that meet the following requirements:

• a net turnover exceeding 150 million EUR in the EU and
• at least one subsidiary or branch in the EU.

How to Prepare for CSRD Compliance? (Steps to Take)

1. Assess Current Reporting
   Evaluate your existing ESG reporting practices and identify gaps between NFRD and CSRD requirements.

2. Develop a Reporting Strategy
   Align your sustainability strategy with the mandatory reporting standards set by the European Sustainability Reporting Standards (ESRS).

3. Engage Key Stakeholders
   Involve relevant departments like finance, HR, operations, and legal teams to ensure that ESG data is collected comprehensively.

4. Upgrade Data Collection Systems
   Implement data management tools to track environmental, social, and governance metrics accurately.

5. Prepare for Audits
   Ensure your sustainability reporting is auditable by external parties, as CSRD mandates third-party verification.

CSRD Compliance Checklist for Companies

Benefits of CSRD Compliance: CSRD compliance offers several advantages

• Enhanced Transparency: Standardised reporting enhances stakeholder trust and company credibility.
• Improved Risk Management: Identifying ESG risks early can prevent financial and reputational damage.
• Access to Capital: Sustainable investors are increasingly favoring companies with solid ESG credentials.

Challenges Companies Might Face

While the CSRD brings numerous benefits, there are potential challenges, such as:

• Increased Reporting Costs: Enhanced data collection, third-party audits, and compliance measures can increase operational costs.
• Data Availability: Collecting reliable ESG data across global supply chains can be challenging for many businesses.
• Changing Standards: As sustainability frameworks evolve, staying updated with the latest reporting standards will be crucial.

ESG Reporting Example (Visual)

Here’s an illustrative breakdown of a hypothetical company's ESG performance using CSRD metrics:

Environmental Metrics (Example Chart) - Example of Environmental Reporting under CSRD

Conclusion

The CSRD will transform how companies approach sustainability reporting. By requiring detailed, standardised disclosures, it encourages transparency, promotes sustainable business practices, and aligns Europe’s corporate sector with the EU’s climate goals. Companies must start preparing for compliance now to avoid penalties and enhance their ESG profiles.

In summary, CSRD is not merely a regulatory hurdle—it is an opportunity for companies to innovate and lead the charge towards a more sustainable future.

For more information and assistance with CSRD compliance, visit contact us at 01788 538150 or drop us a note here and we will get in touch with you.