The CSRD is being enforced as of January 2023 and affects approximately 50,000 companies across Europe. The inclusion of the CSRD ties in to recent global pushes for organisations to be evaluated based on their non-financial performance by defining a common reporting framework for this data.
What is the CSRD?
The CSRD was one of the proposed measures from the European Commission’s ambitious Sustainable Finance Package that originally aimed to enable money flow towards sustainable initiatives. The Sustainable Finance Package and its proposed measures aimed to do this by providing clarity for investors on which economic activities were having the highest impact towards meeting the EU’s environmental objectives. The CSRD specifically extends and replaces the reporting requirements and the scope of existing non-financial reporting regulations, such as the European Sustainability Reporting Standards (ESRS).
ESG reporting is gaining momentum globally and lawmakers in the EU believe that the current reporting requirements in the EU are not sufficient:
“Reports often omit information that investors and other stakeholders think is important. Reported information can be hard to compare from company to company, and users of the information are often unsure whether they can trust it.” - The European Commission
Poor quality and non-standardised sustainability reporting creates an accountability gap that results in chain reactions that impact the support of sustainable investments. Expanding current reporting frameworks via the CSRD will create a clearer picture on the credibility and feasibility of green initiatives across the EU by creating comparability between reporting companies.
The most pertinent non-financial reporting directive prior to the CSRD was the Non-Financial Reporting Directive (very aptly named!)
This directive had been designed to enhance transparency and contributions to sustainable economic development. The CSRD expands this existing directive by changing the scope of companies that are under the directive, hence requiring more organisations to comply with EU Sustainability Reporting Standards (ESRS).
When a company is under the scope of the CSRD they are required to comply with EU Sustainability Reporting Standards (ESRS). Additional to the requirements of the NFRD, affected companies will have to report on information related to their:
The CSRD was adopted in late 2022 and the rules will start applying on a rolling basis as of January 2024:
January 2024: large public companies that are already considered in the scope of the NFRD will need to produce reports in early 2025
January 2025: large companies that aren’t considered in the NFRD when they meet the following criteria
January 2026: listed SMEs and all other businesses will be required to comply with ESRS. SMEs will be able to opt-out of this commitment until 2028.
Currently, it is expected businesses found to not comply with the CSRD standards will be subject to sanctions. However, the severity of these fines and the date of their implementation is not currently known.
These sanctions will be dependent on which country the business is located in, following the sanctioning structure for non-compliance to the NFRD.
Staying up to date with reporting requirements, understanding which data is required, and when you are required to report is no easy feat. Get in touch with the Trace team today to see how we can help you through this process!
London - Sydney
