CSRD Compliance: A Guide for Businesses
What is the CSRD (Corporate Sustainability Reporting Directive)?
The Corporate Sustainability Reporting Directive (CSRD) is a key piece of legislation introduced by the European Union to standardize and strengthen how companies report on environmental, social, and governance (ESG) issues. As part of the EU’s commitment to its European Green Deal and climate neutrality goals, the CSRD aims to provide stakeholders—including investors, consumers, and regulators—with transparent, comparable, and reliable information about a company’s sustainability performance.
The CSRD represents a significant expansion of the EU’s previous Non-Financial Reporting Directive (NFRD), broadening its scope to include more companies and demanding more detailed, standardized, and audited ESG disclosures.
Who Needs to Comply with the CSRD?
The CSRD applies to a broad range of companies, including:
Large Companies
Any company that meets two or more of the following criteria:
- Net turnover exceeding €50 million.
- Total assets exceeding €25 million.
- More than 250 employees.
- All Listed Companies
- Every company listed on EU-regulated markets must comply, regardless of size. This includes
both large corporations and smaller entities.
Non-EU Companies
Companies based outside the EU that generate €150 million or more in revenue in the EU and have at least one subsidiary or branch within the EU.
The new reporting requirements come into effect starting from the 2024 financial year, depending on the size and listing of the company.
Key CSRD Reporting Requirements
The CSRD mandates comprehensive reporting on ESG factors, addressing double
materiality—which considers both the financial impact of sustainability issues on the business and the business’s impact on the environment and society.
1. Environmental Impact
Companies are required to report on various aspects of their environmental performance, including:
Climate Change: Carbon emissions (Scope 1, Scope 2, and Scope 3) and their impact on climate change goals.
Resource Use: Water consumption, waste management, energy efficiency, and material use.
Biodiversity: Efforts to protect and restore biodiversity in business operations and supply chains.
Pollution: Measures taken to reduce pollution and manage environmental risks.
2. Social Impact
Reporting on social factors includes the following:
Labor Practices: Workforce diversity, employee welfare, working conditions, and health and safety.
Human Rights: How the company addresses human rights risks in its operations and supply chain.
Community Engagement: How the company impacts local communities and addresses social issues.
Customer Relations: Ethical marketing, product safety, and consumer privacy practices.
3. Governance Practices
CSRD compliance requires companies to disclose their governance practices, including:
Board Diversity: Gender, age, and skill diversity of boards and senior management.
Ethical Governance: How the company manages conflicts of interest, ethical risks, and anti-corruption policies.
Sustainability Governance: Oversight of sustainability issues at the board level and integration into corporate strategy.
4. Business Strategy and Performance
Companies must also provide a clear explanation of their sustainability strategy, including:
Goals for reducing environmental impact and improving social outcomes.
Key performance indicators (KPIs) used to measure sustainability performance.
The role of sustainability in business operations and long-term planning.
5. Auditing and Assurance
To ensure the credibility and reliability of ESG data, companies will need to have their sustainability reports audited by an independent third party. This will provide stakeholders with assurance that the disclosed data is accurate and in line with the European Sustainability Reporting Standards (ESRS).
CSRD Timeline and Deadlines
The CSRD comes into effect in phases, with different compliance deadlines for companies based on size and type. Here’s a breakdown of the key milestones:
2024:
The first group of companies required to comply will be those that already fall under the NFRD, including large public-interest entities like banks and insurance companies. These companies will need to report in line with the CSRD for the 2024 financial year, with reports due in 2025.
2025:
The second group—large companies meeting the size criteria (turnover, assets, employees)—will need to report for the 2025 financial year, with reports due in 2026.
2026:
Non-EU companies generating €150 million in turnover within the EU and having at least one branch or subsidiary will need to comply for the 2026 financial year. These reports will be due in 2027.
Ongoing:
Sustainability reporting will become an annual requirement, with companies expected to continuously update their ESG performance and data.
CSDDD:
The Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to identify, assess, and mitigate environmental and social risks within their value chains. Compliance with this directive involves developing & implementing robust due diligence processes, including creating climate transition plans and addressing human rights impacts. Organizations must systematically evaluate their operations and supply chains, ensuring responsible practices are integrated at every level. By adhering to the CSDDD, companies can not only meet regulatory expectations but also drive meaningful progress towards sustainability and ethical business practices.
SFDR:
The Sustainable Finance Disclosure Regulation (SFDR) mandates financial institutions and market participants to disclose how sustainability risks are integrated into investment decisions and strategies. Compliance with SFDR involves providing transparent ESG data, which is essential for ensuring credibility in green investments and attracting socially responsible capital. By meeting SFDR requirements, financial institutions can demonstrate their commitment to sustainable finance, offering investors the confidence that their investments align with environmental and social goals, while helping to drive the transition to a more sustainable economy.
Double materiality:
Double materiality is a cornerstone of CSRD compliance, requiring companies to report both the financial impacts of environmental, social, and governance (ESG) factors on their performance and the broader social and environmental consequences of their operations. By addressing both financial materiality and impact materiality , businesses ensure comprehensive ESG disclosures that not only meet regulatory requirements but also foster informed decision-making, enhance transparency, and align corporate practices with long-term sustainability goals. This approach helps companies navigate ESG risks & opportunities while fulfilling their responsibilities to stakeholders and society.
Steps to Achieve CSRD Compliance
To achieve compliance with the CSRD, companies should follow a structured approach:
1. Evaluate Current ESG Practices
Assess your existing sustainability initiatives, data collection processes, and reporting mechanisms. Identify gaps in your current approach to align with CSRD requirements.
2. Integrate ESG into Corporate Strategy
Develop a comprehensive sustainability strategy that integrates environmental, social, and governance factors into your business operations. Set measurable targets and KPIs for tracking progress.
3. Align with ESRS Standards
Ensure your ESG reporting aligns with the European Sustainability Reporting Standards (ESRS). These guidelines provide detailed frameworks for reporting on environmental and social issues, as well as governance practices.
4. Invest in Reporting Tools and Technology
To streamline data collection and reporting, implement technology solutions that facilitate accurate and efficient ESG reporting. This may include using software for tracking emissions, energy use, and other sustainability metrics.
5. Engage External Auditors
Hire independent auditors to verify the accuracy of your sustainability data. This will ensure that your reports meet the CSRD’s assurance requirements.
6. Ongoing Monitoring and Updates
Sustainability reporting is a continuous process. Regularly monitor your performance against sustainability targets and update your strategies as regulations evolve.
Benefits of CSRD Compliance
- Access to Sustainable Investment: By adhering to the CSRD, companies position themselves to attract investment from ESG-focused investors who prioritize sustainability in their decision-making.
- Enhanced Reputation: Transparent, reliable sustainability reporting builds trust with consumers, employees, investors, and other stakeholders, boosting your company’s reputation as a responsible corporate entity.
- Regulatory Preparedness: Proactively aligning with CSRD requirements ensures that your company remains compliant with EU regulations, avoiding potential penalties and reputational risks.
- Risk Mitigation: Effective ESG reporting helps companies identify and manage risks related to environmental impact, social factors, and governance, reducing exposure to potential legal, financial, and operational challenges.
How We Can Help
We specialize in guiding businesses through the complex landscape of ESG compliance. Our expert team can assist you in preparing for the CSRD by:
Conducting an ESG readiness assessment.
Helping you align with European Sustainability Reporting Standards (ESRS).
Assisting in the development of a tailored sustainability strategy.
Providing third-party auditing and assurance services.
Implementing ESG data management systems to streamline reporting.
Get in touch with us to start your CSRD compliance journey today and ensure your business
meets the EU’s sustainability reporting requirements with confidence.