The Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) are legally binding initiatives for companies to give provide details on performance

The CSRD is the framework and the ESRS details the reporting standards. CSRD was introduced in January 2023 by the European Commission with the purpose to modernise and strengthen rules on social and environmental information which companies need to report. (1)

It replaces the Non-Financial Reporting Directive (NFRD) and will require all large and listed companies in the European Union, as well as listed SMEs, to report on sustainability. Some non-EU companies will also have to report if they generate more than Euros 150 million on the EU market.

The rules aim to ensure that investors and other stakeholders have access to information needed to assess the impact on people and the environment, while being better able to assess financial risks and opportunities arising from climate change and other sustainability issues.  The EU hopes that the new rules will reduce reporting costs over the medium to long term by harmonising the information to be provided.

The rules applied for the first time in the 2024 financial year, for reports published in 2025.

Companies subject to the CSRD need to report according to the ESRS, developed in a draft form by the EFRAG, previously known as the European Financial Reporting Advisory Group, an independent body bringing together various different stakeholders. (2)

The first set of ESRS was published in December 2023 and apply to companies under the scope of the CSRD regardless of which sector they operate in. The aim is to make sustainability reporting more consistent, comparable, and reliable across the EU.

Non-EU companies with significant market presence in the EU are also covered by the regulations.

The CSRD applies to all listed companies (except micro-undertakings), and large companies that meet at least two of the following criteria:

• more than 250 employees

• turnover exceeding €40 million

• balance sheet total exceeding €20 million in assets

• Listed SMEs, except micro-enterprises, small and non-complex credit institutions and captive insurance undertakings

• Third-country undertakings with net turnover above 150 million in the EU, if they have at least one subsidiary or branch in the EU exceeding certain thresholds

Companies in scope will need to report on a range of sustainability issues, including environmental, social, and governance (ESG) elements, including greenhouse gas emissions, employee health and safety, diversity and inclusion.

The CSRD has three main objectives:

• make sustainability reporting more consistent and comparable

• improve the quality and reliability of sustainability information

• drive progress in the sustainability performance of EU companies

This means that companies should report sustainability efforts in a consistent and comparable form, which not only helps investors choose sustainable investments by providing reliable information but also helps consumers make informed decisions.

The CSRD will also help businesses to identify and address sustainability impacts, risks, and opportunities that would hopefully lead to better management of sustainability challenges.

The directive framework is more comprehensive and ambitious than the NFRD, which focused on a broader set of ESG issues and did not provide a set of clear, mandatory disclosure requirements.

CSRD also introduces new obligations, like inclusion of a sustainability statement in management reports and provision of assurance on sustainability reporting.

The ESRS are aligned with existing standards and frameworks, including the Global Reporting Initiative (GRI) Standards and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

The standards aim to encourage companies to disclose relevant and reliable sustainability information in a transparent and consistent manner within a clear framework.  Companies must use the ESRS to prepare ESG disclosure information. Existing ESG reporting frameworks and standards such as CDP, GRI, SASB, and others have been taken into account  as part of the ESRS development process.

SaveMoneyCutCarbon advises that to comply with the CSRD, companies will need to take the following steps:

1.        Assess any action needed around CSRD.

2.        Identify relevant application date: 

• Reporting in 2025 for FY 2024: Companies covered by NFRD​

• Reporting in 2026 for FY 2025: Large companies that are not currently subject to the NFRD;

• Reporting  in 2027 for FY 2026: Listed SMEs (except micro undertakings), small and non-complex credit institutions and captive insurance undertakings;

• Reporting in 2029 for FY 2028: Third-country undertakings as indicated above.

3.        Assess current sustainability reporting practices, identify gaps in reporting.

4.        Develop a sustainability reporting strategy, including  timeline for implementation, and resources required.

5.        Identify, collect and analyse relevant sustainability data.

6.        Implement appropriate reporting processes and procedures to ensure compliance.

7.        Stay up-to-date with ESRS developments.‍

Full compliance with the CSRD and ESRS disclosure framework requires thorough evaluation of how operations impact sustainability factors and how these affect financial health. Assessments under the new requirements are critical for transparency to help investors as well as strengthening ethical operations.

The CSRD and ESRS also should benefit other stakeholders, such as employees, customers, and communities affected by business operations. The downside is that they can also be cumbersome and complicated, given the nature of the “double materiality” focus.

But in taking these steps, companies should ensure compliance while developing a more sustainable future, with practices flagged up that can help companies identify and address sustainability impacts, risks and opportunities.

Bibliography

1 Corporate sustainability reporting (Accessed January 2025) https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en

2Corporate sustainability reporting (Accessed January 2025) https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en