The CSRD is one of the cornerstones of the European Green Deal. On 21st June 2022, the Council and the European Parliament reached a provisional agreement to set the new rules on corporate sustainability reporting in the EU and beyond. It was officially adopted by the European Parliament on 11th November 2022, and the Council is expected to adopt the proposal on 28th November 2022.
Here we share the 5Ws of what was established in the corporate sustainability reporting directive (CSRD).
What is new about the CSRD?
With the corporate sustainability reporting directive (CSRD), organisations of all sizes will be required to provide a sustainability report, thus disclosing ESG data. The CSRD will aso be introducing a certification requirement for sustainability reporting in order to guarantee the authenticity of the data provided.
Why is the CSRD needed?
In line with the European Green Deal, the CSRD’s aim is to bolster action for people and the planet with a clear social and environmental ambition. This directive addresses shortcomings in the existing rules on disclosure of non-financial information and will have a direct effect in the following areas by:
- stopping greenwashing,
- improving transparency for stakeholders (citizens, consumers and investors)
- improving accessibility of information
- simplifying the process for companies to provide information
By following these principles, the directive acts as a catalyst to direct investments to sustainable solutions. Moreover, the directive will make available to financial market participants the data necessary to comply with the disclosure requirements through the Sustainable Finance Disclosures Regulation (SFRD).
Who does the CSRD include?
The CSRD will have an impact in the European Union and beyond, as it brings under the scope of the directive the following organisations:
- all large companies in the EU (and their subsidiaries) and all companies listed on regulated markets.
- SMEs. *SMEs can be exempted from the application until 2028 if they wish to opt-out of the directive.
- Non-European companies: the requirement to report will be for those that generate a net turnover of €150 million in the EU and which have at least one subsidiary or branch in the EU.
When will the CSRD come into force?
The directive will come into force in three stages:
- 1 January 2024 for public-interest companies with +500 employees already subject to the non-financial reporting directive, with reports due in 2025
- 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive with +250 employees and/or €40 million in turnover and/or €20 million in total assets, with reports due in 2026
- 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings, with reports due in 2027
How can I report according to the CSRD?
To follow the CSRD requirements, reports must be certified by an accredited independent auditor or certifier. Also, information must be published in a dedicated section of the company’s management reports.
Lastly, the European Financial Reporting Advisory Group (EFRAG) will be responsible for establishing the common framework that the CSRD will use: the European Sustainability Reporting Standards (ESRS). The CSRD mandates the use of the ESRS for some 50,000 companies. The Commission is expected to adopt the first set of standards by June 2023.
In these times of regulatory tsunami, using tools that can automate the process of ESG data gathering can come in handy. At APlanet we develop software to compile, manage and report data for companies, always helping them along the process.
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