Reporting requirements explained: Corporate Sustainability Reporting Directive
The Corporate Sustainability Reporting Directive (CSRD) is an EU legislation aimed at harmonising sustainability reporting requirements for companies across the EU. This includes subsidiaries of certain non-EU (including UK) parents. The directive aims to increase transparency and comparability of corporate sustainability reporting and facilitate the transition to a sustainable economy. It requires companies to report on a wide range of sustainability topics, including environmental, social and governance (ESG) issues, human rights and anti-corruption measures.
Entities in scope
The CSRD will apply to all companies listed on EU-regulated markets (except for listed micro-enterprises) and all companies meeting the criteria of ‘large’ EU companies. Large EU companies includes EU-registered subsidiaries of non-EU parent companies.
A company will be defined as large if it meets at least two of the below criteria at its balance sheet date:
- More than 250 employees
- Turnover greater than €40 million
- Balance sheet total greater than €20 million.
For groups, sustainability reports must be consolidated in the ultimate consolidated management report of the parent company. If the reporting standards of the country the parent company is registered in are recognised by the EU, the subsidiary undertakings will be exempt from CSRD reporting requirements.
Large non-EU registered groups will also be in scope if the group generates EU revenues in excess of €150 million for two consecutive years and has a large EU subsidiary or an EU branch generating revenues over €40 million.
What do you need to report?
The CSRD proposes a set of mandatory and consistent sustainability reporting requirements, which companies will need to comply with.
Some of the key requirements companies will need to report on include:
- its sustainability policies, risks and opportunities;
- its impact on the environment, including its greenhouse gas emissions, energy consumption and use of natural resources;
- its social impact, including its impact on employees, communities and human rights;
- its governance practices, including diversity, anti-corruption measures and board structure;
- its use of common sustainability reporting standards and frameworks, such as the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD);
- a “double materiality” basis, meaning both the impact of sustainability issues on companies’ own operations and the impact of their operations on sustainability issues.
Alongside CSRD are the European Union Sustainability Reporting Standards (ESRS) outlining the specifics of how and what companies are required to report to comply with the new regulations.
The requirements expand on the existing Non-Financial Reporting Directive (NFRD) requirements:
When do you need to report by?
Large companies already meeting the criteria for NFRD reporting will be required to report against CSRD from 1 January 2024, meaning the first annual reports including CSRD reporting will be for 2024 financial years.
Companies meeting the new CSRD reporting criteria but that were not subject to NFRD previously will be required to report against CSRD from 1 January 2025. Their first CSRD reporting will be included in annual reports from 2025 financial years onwards.
The requirements for large non-EU groups are effective from 1 January 2028.