What is the CSRD and who does it apply to?

Overview

The Corporate Sustainability Reporting Directive, known as the CSRD, is a new regulation that replaces the current Non-Financial Reporting Directive (NFRD). The NFRD applies to about 12,000 organizations in the EU and deals with the disclosure of non-financial and diversity information, including sustainability reporting.

The CSRD has a much broader scope and will apply to an additional 50,000 companies across all sectors by 2024. These companies will be required to publicly disclose detailed and transparent information about how sustainability issues affect their business, from both an external perspective (such as risks and opportunities) and an internal perspective (such as impacts on people and the environment).

Objectives of the CSRD

The main objectives of the CSRD are to ensure that investors, consumers, policymakers, civil society organizations, and other stakeholders have access to all the financial and non-financial data they need to assess a company's social and environmental impacts. It also aims to make companies more attractive to investors and stakeholders by improving disclosure requirements. Additionally, the CSRD aims to provide investors with more accessible, comprehensive, and verifiable non-financial data to support their decision-making on environmental, social, and governance (ESG) factors.

Timing

Approved on April 21, 2021, as part of the Sustainable Finance Package, the CSRD came into effect on January 5, 2023. The European Union Council gave its final approval to the CSRD on November 28, 2022, following the Council's approval of the European Parliament's position. Companies must comply with the CSRD by submitting their reports for the 2024 financial year by January 1, 2025. Many organisations are gearing up for this requirements right now and adopting solutions to ensure data and report processes are setup for the 2024 reporting year.

Challenges

Meeting the requirements of the CSRD may pose challenges for reporting companies as data collection and auditing can be time-consuming and resource-intensive. If your company is unfamiliar with the CSRD and unsure about compliance, it is crucial to gain knowledge about the regulation. At FINGREEN AI, we have the expertise and tools to help you effectively navigate the CSRD.

The CSRD is part of a larger Sustainable Finance Package introduced by the European Commission to promote sustainable activities within the European Union. It addresses the need for improved transparency and reliability in reporting by building upon the existing Non-Financial Reporting Directive (NFRD), which has required certain public interest entities to report on their sustainability performance since 2018.

The goal of the CSRD is to address the shortcomings in company information and ensure that sustainability reporting is more comparable and trustworthy. It introduces a harmonized framework for reporting and mandates the audit of sustainability information, further enhancing the reliability of the reported data.

Who does it apply to?

Unlike the NFRD, which only applies to public interest entities with over 500 employees, the CSRD extends the reporting requirements to all large companies with any of the following;

• Over 250 employees
• A turnover of over €40 million
• And/or total assets exceeding €20 million.
• All listed companies, except for smaller enterprises with fewer than 10 employees or less than €20 million in turnover.

Reporting obligations

Under the CSRD, companies are required to disclose information on environmental protection, social responsibility, human rights, anti-corruption, bribery, and diversity on company boards. Additionally, the CSRD introduces new requirements such as the double materiality concept, which considers both sustainability risks affecting the company and the company's impact on society and the environment.

Companies will also need to report on their process of selecting material topics for stakeholders and include more forward-looking information, targets, and progress in their reports. Intangible assets, such as social, human, and intellectual capital, must also be disclosed. Furthermore, reporting under the CSRD aligns with the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation.

Implementation

The implementation timeline for the CSRD is as follows: EU member states have until the end of 2023 to adopt the directive into national law. Companies within the scope of the CSRD and currently reporting under the NFRD must report their data for the 2024 financial year by January 1, 2025. From the beginning of 2024, all other large EU companies within the scope of the CSRD must also start reporting. Different deadlines apply to different types of companies, with SMEs having lighter reporting requirements.

While exact sanctions for non-compliance with the CSRD are yet to be determined, it is expected that significant penalties will be imposed by member states based on their individual regulations.

What next?

Planning starts now. To ensure compliance with the CSRD and successfully navigate the reporting requirements, companies need to take proactive steps. Seeking expert advice and guidance can help companies understand the data that needs to be collected and when to disclose it. At FINGREEN AI, we provide the necessary support to help your company prepare for its obligations and implement effective ESG processes to ensure you are ready for the CSRD. Contact us today to learn more and ensure that your company meets the requirements of this game changing regulation.