In today's world, businesses are increasingly recognizing the importance of sustainability in their operations. It's no longer just a buzzword; it's a fundamental aspect of responsible corporate behavior. To further this commitment to sustainability, the European Union (EU) has introduced the Corporate Sustainability Reporting Directive (CSRD).
The Main Goal of the CSRD
The primary goal of the Corporate Sustainability Reporting Directive is to enhance sustainability reporting and disclosure by companies that are subjected to this directive, as set forth below. It aims to create a standardized framework for reporting on environmental and social matters.
What is the difference between NFRD and CSRD?
CSRD takes over from NFRD, the 2014 directive that aimed to standardize non-financial reporting. Here are the key differences:
- Wider Scope: The number of reporting companies expands dramatically, from 11,600 to nearly 50,000.
- Double Materiality: CSRD integrates environmental and financial performance, recognizing their interconnectedness. The double materiality assessment identifies both how a company's operations impact people and the environment, and also considers how sustainability considerations impact the company itself.
- Digital Mandate: CSRD requires reports to be in the European electronic format xHTML, enhancing accessibility.
- Validation Requirement: CSRD introduces validation by auditors or independent organizations to enhance report credibility.
- Dedicated Section: Non-financial information now resides in a dedicated section of the management report, elevating its importance.
What's Required to Report?
When it comes to sharing ESG information, companies have guidelines to follow. Under the NFRD, wich is the older directive been replaced by the CSRD, companies needed to report on:
- Environmental Outlook: Consideration of environmental risks in the short, medium, and long term.
- Employee Treatment and Social Responsibility: How companies treat employees and fulfill social responsibilities.
- Human Rights and Anti-Corruption: Respect for human rights and efforts to combat corruption and bribery.
- Board Diversity: Encouragement of diversity in boards of directors.
The CSRD, introduces 3 new reporting requirements, on top of the NFRD:
- Sustainability Risks: Assessment and disclosure of sustainability risks affecting the company.
- Environmental Impact: Reporting on the company's environmental impact.
- Sustainable Development Goals: Announcing sustainable development goals and measures to achieve them.
Who Is Affected by the CSRD Directive?
The CSRD applies to a wide range of entities operating within the EU. While the specific criteria may vary, the directive primarily affects:
- Companies publicly traded on European regulated markets, including those listed as SMEs (with the exception of micro-enterprises identified by the Accounting Directive).
- Other European enterprises, whether they are publicly listed or not, that surpass at least two out of the three specified criteria:
- Having more than 250 employees
- Generating revenue in excess of 40 million euros
- Possessing total assets valued at over 20 million euros.
- Non-European corporations with subsidiaries operating within the EU that report revenues above EUR 150m.
What Is the Timeline for the Implementation of the CSRD?
- Starting from January 1, 2025 (applying to the 2024 fiscal year), it becomes effective for both European and non-European companies already obligated to report under the NFRD.
- Commencing on January 1, 2026 (for the 2025 fiscal year), it applies to large European companies and non-European companies listed on European regulated markets that were not previously subject to the NFRD.
- Beginning on January 1, 2027 (for the 2026 fiscal year), it is applicable to listed European and non-European SMEs. It's worth noting that these SMEs can potentially benefit from an additional two-year extension, provided they can provide adequate justification for the extension.
- From January 1, 2028 (pertaining to the 2027 fiscal year), it covers non-European companies whose European subsidiary or branch generates revenue exceeding 150 million euros.
As we move towards full implementation, it's clear that the CSRD will play a crucial role in shaping the future of corporate sustainability reporting in the European Union.
How can ESGgo software help you with the CSRD?
ESGgo’s software is a powerful AI platform designed specifically for Environmental, Social, and Governance (ESG) considerations. When it comes to navigating the requirements of the Corporate Sustainability Reporting Directive (CSRD), ESGgo proves to be an invaluable asset. It excels in helping organizations assess their current sustainability reporting practices and identifying gaps that may exist in relation to emerging regulations, such as the CSRD.
By providing a comprehensive gap analysis, ESGgo facilitates a seamless transition towards CSRD compliance, ensuring that your organization's reporting aligns perfectly with the sustainability framework outlined by this directive.
Book a demo now with ESGgo here.