Advisory

The Corporate Sustainability Reporting Directive (CSRD) is the new EU legislation requiring all companies to publish regular reports on their environmental and social impact activities. Compliance is happening soon: large companies must submit their report aligning with the CSRD on 1 January 2024, for the 2023 financial year. It will be challenging for reporting companies, as data collection and auditing is an arduous process requiring time and resources. The CSRD extends the scope and reporting requirements of the already existing Non-Financial Reporting Directive. This new legislation comes into play as Environmental, Social and Governance (ESG) reporting gains momentum.

Important milestones:

– End of 2022: EU Member States will have to adopt the EU Directive into national law

– 2024: Large Corporates (already reporting through NFRD) will have to report according to a first set of Sustainability Reporting Standards for the financial year 2023

– 2025: Large Corporates (with lower thresholds) will have to report according to a first set of Sustainability Reporting Standards for the financial year 2024

– 2027: Small and medium enterprises will have to start reporting to a separate, proportionate reporting standard for the financial year 2026

1st wave of companies having to comply with the CSRD?

While the NFRD only requires “public interest entities” with more than 500 employees to report on their sustainability performance, the CSRD will require all large companies – meaning companies with more than 250 employees and more than €40M turnover and/or more than €20 Million in total assets – and all listed companies (except micro-enterprises, less than 10 employees or below €20M in turnover) to report on their sustainability.

SMEs having to comply with the CSRD?

The CSRD requires SMEs to begin reporting sustainability metrics with reference year 2026. This refers to Small Medium Enterprises, which on their balance sheet dates exceed at least two of the three following criteria: over 50 employees and
more than €8M turnover and/or more than €4M in total assets.

Early compliance with CSRD offers advantages

– New insights arise when companies get a grip on the non-financial indicators relating to corporate activities. For example, new opportunities for cost savings (including energy reduction) and innovations in the production process.

– In line with the proposed tightening up of climate ambitions, the EU will introduce more stringent legislation on ESG over the coming years, affecting both large companies and SMEs. Early anticipation of how this legislation affects corporate activities and drawing up strategic plans to reduce any negative impact, will ensure that companies is more agile and future-proof to face these challenges. Actively focusing on ESG requirements provides a competitive advantage over companies that have no reporting obligation yet.

– In addition, early compliance with ESG reporting in the long term offers a scope for streamlining the company’s production and supply chain from a sustainability point of view. In this way, companies can enter into strategic partnerships and identify future bottlenecks at an early stage. This guarantees the continuity of the supply chain at the time the directives enter into force.

The challenge

Developing the right ESG reporting is a serious challenge for many organizations. The amount of ESG metrics is vast and varies by industry, company size and complexity. In addition, there are many different measurement and reporting frameworks worldwide. We help you prepare an ESG report that meets the requirements of the CSRD, including the EU Taxonomy.