The Corporate Sustainability Reporting Directive (CSRD) - Everything you need to know
The Corporate Sustainability Reporting Directive (CSRD) will soon introduce new reporting obligations for companies in public ownership. It will soon be implemented into german law. Learn everything you need to know about the CSRD and the best way to prepare for the introduction of the new directive.
In recent years, sustainability reporting has become much more important. Companies and investors are increasingly recognizing the value of understanding a company's impact on the environment and society. With the implementation of the EU's Corporate Sustainability Reporting Directive (CSRD), public companies are facing new reporting obligations. In this article, we look at the most important aspects of the CSRD and explain how companies can prepare for compliance with this new directive.
Why was the CSRD established?
In 2014, the European Union (EU) introduced the Non-Financial Reporting Directive (NFRD) to encourage public interest entities to disclose non-financial information relating to environmental, social and governance matters. This reporting obligation has been extended with the CSRD and the range of application has been significantly expanded. The CSRD was introduced to close existing gaps in the reporting regulations and improve comprehensive sustainability reporting. Its aim is to strengthen the accountability of european companies with regard to sustainability aspects and for the first time to introduce binding reporting standards at EU level.
What is the CSRD?
Companies in public ownership were already obliged under the NFRD to report on various environmental, social and governance matters. The CSRD extends this reporting obligation. Companies must now submit reports on their future-oriented sustainability goals, the function of the management board and supervisory board, the company's material negative impacts and intangible resources not previously taken into account.
An essential element of the CSRD is the external verification, in which the sustainability report must be verified by an independent entity in accordance with the standards set by the EU. In contrast to the NFRD, the CSRD requires sustainability reporting to be included as an integral part of the management report alongside financial reporting. Under the NFRD, this was still possible as separate reporting. Companies must apply the ESEF regulation (European Single Electronic Format) and publish the sustainability information in XHTML format for machine readability in the European Single Access Point (ESAP). The European Financial Reporting Advisory Group (EFRAG) has developed two draft standards for sustainability reporting for small and medium-sized enterprises (SMEs).
Who is affected by the CSRD?
The number of companies with a reporting obligation has increased significantly with the introduction of the CSRD. While around 11,600 companies had to report under the NFRD, it is estimated that the CSRD now covers around 49,000 companies in Europe. Companies that have already reported under the NFRD must also report under the CSRD.
To be covered by the CSRD, companies must meet certain criteria. Companies with at least 250 employees, a net revenue of at least 40 million euros or a balance sheet total of at least 20 million euros must meet the requirements. This means that many companies in public ownership, such as municipal utilities or rail transport companies, are also subject to the CSRD. All listed companies must meet the requirements of the CSRD, unless they are small companies that meet certain size criteria, such as less than 10 employees, a net revenue of less than 700,000 euros and a balance sheet total of less than 350,000 euros. In addition, companies outside the EU must also comply with the CSRD if they achieve a revenue of more than 150 million euros in the EU in two consecutive years.
Current status and timetable of the CSRD
Until the CSRD is fully implemented, the regulations of the NFRD remain in force. In April 2021, the European Commission published the proposal for a CSRD directive. On June 21, 2022, the Commission, the Council and the European Parliament agreed on a compromise. The directive came into force at EU level in January 2023 and the EU member states must implement the new regulations into national law within 18 months. The implementation into national law must take place by July 2024 at the latest. The draft bill for the CSRD was presented in March 2024.
In October 2023, the European Commission announced that it would postpone the date for the adoption of the sector-specific European Sustainability Reporting Standards (ESRS) by two years. The Commission also recommends postponing the adoption of regulations for large non-EU companies operating in the EU by two years.
How can companies in public ownership prepare for the CSRD?
Companies must report on a data-based format on how they affect the environment, society and climate and how these in return affect the company. (Planned) measures to address environmental, social and climate impacts must also be identified, implemented and subsequently measured. The challenges of the reporting obligation therefore lie primarily in data collection, processing and visualization, where the accuracy and transparency of the data must be ensured in order to pass the external examination of the CSRD.
In order to prepare for the implementation of the CSRD, the directive should be first understood in detail and its reporting obligations internalized. The next step is to identify the required data sources and plan the technical implementation of data processing. A data platform such as Polyteia's supports data collection, inter-organizational collaboration, the creation and sharing of reports and the evaluation of measures. With Polyteia's data platform, you can connect any number of data sources via connectors and collect data using data entry masks where no data sources are available. With the intuitive user interface, you can collaboratively create reports and share them with selected organizations or individuals.
Conclusion of the CSRD
The CSRD marks a milestone for sustainability reporting in the European Union. In order to easily meet the new requirements, companies in private and public ownership should prepare for compliance with the CSRD. To do so, it is essential that they understand the CSRD guidelines and prepare for secure data collection and external verification. This process not only ensures compliance with the guidelines, but also enables smooth reporting that meets the requirements of the CSRD.
