The Corporate Sustainability Reporting Directive (CSRD) is one of the most significant developments in sustainability and ESG reporting in recent years. The CSRD is an update to a previous directive from 2014 and expands the scope of companies that are required to report on sustainability issues. The CSRD aims to improve the quality and comparability of published information by requiring companies to use European Sustainability Reporting Standards (ESRS) and mandating the auditing of sustainability reports. The CSRD requires companies to conduct a “double materiality” assessment, meaning that they must report not only on how sustainability issues impact their business, but also on how their business impacts sustainability. The CSRD applies to both EU companies and non-EU companies operating in the EU, and will be phased in over a period of 4 years, starting with companies that are already reporting under the Non-Financial Reporting Directive in 2024, followed by large EU companies in 2025, listed small and medium-sized enterprises in 2026, and non-EU companies meeting the CSRD conditions in 2028. The goal of the CSRD is to provide investors with a more reliable overview of sustainability-related risks and enable them to make more informed investment decisions.
The CSRD is expected to come into effect in 2024 and will be phased in over a four-year period. Companies already reporting under the Non-Financial Reporting Directive (NFRD) will be required to comply with the CSRD for reporting periods beginning on or after 1 January 2024. Large EU companies will be required to comply with the CSRD for reporting periods beginning on or after 1 January 2025, while listed small and medium-sized enterprises (SMEs) will be required to comply with the CSRD for reporting periods beginning on or after 1 January 2026. Non-EU groups that meet the CSRD’s conditions will be required to comply with the CSRD for reporting periods beginning on or after 1 January 2028.
The goal of the CSRD is to improve the quality and comparability of published ESG information and to provide investors with a more reliable overview of sustainability-related risks to which companies are exposed. The adoption of the CSRD is expected to increase the credibility of the market for green investments, as investors will have more information about the sustainability impact of the companies in which they invest. Ultimately, the aim of the CSRD is to enable investors to re-orient their investments towards more sustainable technologies
and businesses.
But despite the legislative framework and its official implementation dates, market dynamics are pushing companies to run at a faster speed of implementation. The most conscious businesses and those that see the future more clearly (visionaries) have already begun their transition that will offer them a competitive advantage. The sustainable development strategy and the publication of responsible business practices through Sustainability Reports will bring about major disruptions in the supply chain of many businesses. Already large multinationals are announcing obligations to their suppliers regarding ESG requirements, alternatively they will replace those that do not comply.
Effectively, the transition to a sustainable development strategy gives a unique opportunity to companies that will embrace it without waiting for the official implementation dates of the CSRD framework. Companies should consider how to identify, collect and evaluate ESG data, manage environmental, social and governance risks, and develop policies, setting achievable targets and follow relevant performance indicators (KPIs). Despite today’s macroeconomic and geopolitical challenges sustainable development gives companies the opportunity to grow and expand into new horizons with long term perspectives.
2023 has already begun. The clock is ticking. The future will not wait…..